The initial cost of property and equipment consists of its purchase An intangible asset is recognized only when its
when its cost can be
price, any directly attributable costs of bringing the asset to
its working condition and location for its intended use and the
initial estimate of the costs of dismantling and removing the item
and restoring the site on which it is located to the extent it had
recognized an obligation for that cost.
Expenditures incurred after an item of property and equipment
has been put into operation, such as repairs and maintenance,
are normally charged to operations in the year in which the costs
are incurred. In situations where it can be clearly demonstrated
that the expenditures have resulted in an increase in the future
economic benefits expected to be obtained from the use of an item
of property and equipment beyond its originally assessed standard
of performance, the expenditures are capitalized as an additional
cost of property and equipment. When the property and equipment
are retired or otherwise disposed of, the cost and the related
accumulated depreciation and amortization are removed from the
accounts and any resulting gain or loss is reflected in profit or loss.
Depreciation and amortization is computed using the straight-
line method over the estimated useful lives of the property and
equipment as follows:
5 years or the lease term,
Leasehold improvements whichever is shorter
Furniture, fixtures and equipment 3-5 years
Transportation equipment 3-5 years
The useful life and the depreciation and amortization method
are reviewed periodically to ensure that the period and method of
depreciation and amortization are consistent with the expected
pattern of economic benefits from items of property and equipment.
An item of property and equipment is derecognized upon disposal
or when no future economic benefits are expected from its use or
disposal. Any gain or loss arising on derecognition of the assets,
which is calculated as the difference between the net disposal
proceeds and the carrying amount of the asset, is included in profit or
loss in the year the asset is derecognized.
Assets Held for Sale
An asset is classified as held for sale if its carrying amount will
be recovered principally through a sale transaction rather than
through continuing use, available for immediate sale and its sale
is highly probable. An asset classified as held for sale is measured
at the lower of fair value less costs to sell and its carrying amount.
Any impairment loss on write-down of the asset to fair value less
costs to sell is recognized in profit or loss. Any gain on subsequent
increase in fair value less costs to sell is also recognized in profit or
loss, but not in excess of the cumulative impairment loss already
recognized on the asset.
Assets held for sale of the Company consists mainly of motor
vehicles foreclosed from borrowers or lessees who have defaulted
on their installment or lease payments.
Intangible Assets
This consists of software costs, stated at acquisition cost and is
amortized on a straight-line basis over estimated useful life of
five (5) years.
measured reliably and it is probable that the expected future
economic benefits that are attributable to it will flow to the
Company.
Other Assets
Other assets consist of prepaid expenses, security deposits,
retirement asset and withholding tax receivables.
Prepaid expenses are advanced payments for occupancy costs and
employee benefits. Security deposits are rental deposits for the
Company’s office space and residential units for officers.
Prepaid expenses and security deposits are recognized in the
balance sheet when it is probable that the future economic benefits
will flow to the entity and the asset has a cost or value that can
be measured reliably. Amortization of prepayments is recognized
monthly on a straight-line basis.
Withholding tax receivable pertains to Creditable Withholding
Tax (CWT). CWT is recognized by virtue of Republic Act (RA) No.
8424 relative to the withholding on income subject to expanded
and final withholding tax on compensation, value-added tax and
other percentage taxes. CWT is recognized when the counterparty
withheld certain taxes payable to the taxation authority, and is
reduced to the extent of that CWT will not be realized, through the
use of an allowance account.
Impairment of Non-financial Assets
The carrying values of non-financial assets (i.e. property and
equipment, assets held for sale, software cost and other assets) are
reviewed for impairment when events or changes in circumstances
indicate that the carrying values may not be recoverable. If any such
indication exists and where the carrying values exceed the estimated
recoverable amounts, the assets or cash-generating units are written
down to their recoverable amounts. The recoverable amount of
an asset is the greater of its net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects
current market assessment of the time value of money and the risks
specific to the asset. For an asset that does not generate largely
independent cash inflows, the recoverable amount is determined for
the cash-generating unit to which the asset belongs. Impairment
loss is recognized under ‘Provision for credit and impairment losses’
in statements of comprehensive income.
An assessment is made at each reporting date as to whether there
is any indication that previously recognized impairment losses may
no longer exist or may have decreased. If such indication exists,
the recoverable amount is estimated. A previously recognized
impairment loss is reversed only if there has been a change in the
estimates used to determine the asset’s recoverable amount since
the last impairment loss was recognized. If that is the case, the
carrying amount of the asset is increased to its recoverable amount.
That increased amount cannot exceed the carrying amount that
would have been determined, net of depreciation and amortization,
had no impairment loss been recognized for the asset in prior years.
Such reversal is recognized in profit or loss. After such a reversal,
depreciation and amortization expense is adjusted in future years to
allocate the asset’s revised carrying amount, less any residual value,
on a systematic basis over its remaining life.
POSITIVE RESULTS 35
 Retirement Cost
The Company has a funded, noncontributory defined benefit
retirement plan covering all its employees with regular employment
status. The defined benefit liability (asset) is the aggregate of the
present value of the defined benefit obligation at the end of the
reporting period reduced by the fair value of plan assets, adjusted
for any effect of limiting a net defined benefit asset to the asset
ceiling. The asset ceiling is the present value of any economic
benefits available in the form of refunds from the plan or reductions
in future contributions to the plan.
The cost of providing benefits under the defined benefit plans is
actuarially determined using the projected unit credit method.
Defined benefit costs comprise the following:
• Service cost
• Net interest on the net defined benefit liability or asset
• Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs
and gains or losses on non-routine settlements are recognized as
expense in profit or loss. Past service costs are recognized when
plan amendment or curtailment occurs.
Net interest on the net defined benefit liability or asset is the change
during the period in the net defined benefit liability or asset that
arises from the passage of time which is determined by applying the
discount rate based on government bonds to the net defined benefit
liability or asset. Net interest on the net defined benefit liability or
asset is recognized as expense or income in profit or loss.
Remeasurements comprising of actuarial gains and losses,
return on plan assets and any change in the effect of the asset
ceiling (excluding net interest on defined benefit liability) are
recognized immediately in OCI in the period in which they arise.
Remeasurements are not reclassified to profit or loss in subsequent
periods.
Plan assets are assets that are held by a long-term employee benefit
fund. Plan assets are not available to the creditors of the Company,
nor can they be paid directly to the Company. Fair value of plan
assets is based on market price information. When no market price
is available, the fair value of plan assets is estimated by discounting
expected future cash flows using a discount rate that reflects
both the risk associated with the plan assets and the maturity or
expected disposal date of those assets (or, if they have no maturity,
the expected period until the settlement of the related obligations).
If the fair value of the plan assets is higher than the present value
of the defined benefit obligation, the measurement of the resulting
defined benefit asset is limited to the present value of economic
benefits available in the form of refunds from the plan or reductions
in future contributions to the plan.
Leases
The determination of whether an arrangement is, or contains a lease
is based on the substance of the arrangement at inception date
whether the fulfillment of the arrangement is dependent on the use
of a specific asset or assets or the arrangement conveys a right to
use the asset.
Company as lessor
The Company recognizes assets held under a finance lease in its
statement of financial position as a receivable at an amount equal
to the net investment in the lease. The lease payments received
36 HIGH PERFORMANCE
from the lessee are treated as repayments of principal and finance
income. Initial direct costs that are incremental and directly
attributable to negotiating and arranging the lease are included in
the measurement of the net investment in the lease at inception
and reflected in the calculation of the implicit interest rate.
Company as lessee
Lease of assets under which the lessor effectively retains all the risks
and rewards of ownership is classified as operating lease. Lease
payments under an operating lease are recognized as an expense on
a straight-line basis over the lease term.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the income can be
reliably measured. The following specific recognition criteria must
also be met before revenue is recognized:
Interest income
Interest and financing fees on finance leases and loans and
receivables (including dealers’ and manufacturers’ subsidy) are
initially credited to unearned income and amortized over the term
using effective interest method. Any direct costs to acquire finance
leases and loans and receivables are capitalized and amortized using
the effective interest method.
Interest income on impaired receivables is recognized based on the
rate used to discount future cash flows to their net present value.
Interest income from cash in bank is accrued as earned.
Service fees
Service fees earned for the provision of transaction services
such as processing fees are recognized upon completion of the
underlying transaction.
Recoveries of accounts written off
Recoveries of accounts written off are recognized as income upon
actual collection.
Gain or loss on sale of non-current assets
The gain or loss arising from the sale of non-current asset held
for sale, property and equipment and software costs is included
in profit or loss when the asset is derecognized. The gain or loss
arising from the derecognition is determined as the difference
between the net disposal proceeds and its carrying amount on the
date of the transaction.
Foreign exchange gain/loss
Exchange differences arising on the settlement of monetary items
or on translating monetary items at rates different from those at
which they were translated on initial recognition during the period
or in previous financial statements shall be recognized in profit or
loss in the period in which they arise.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction
or production of an asset that necessarily takes a substantial period
of time to get ready for its intended use are capitalized. All other
borrowing costs are recognized as expense in the year which they
are incurred.
Income Taxes
Current taxes
Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted at the reporting date.
Deferred taxes
Deferred tax is provided on all temporary differences at the
reporting date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary
differences. Deferred tax assets are recognized for all deductible
temporary differences, carryforward benefit of the excess of
minimum corporate income tax (MCIT) over regular corporate
income tax (RCIT) and unused net operating loss carryover
(NOLCO), to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences and
carryforward of MCIT and unused NOLCO can be utilized.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or
part of the deferred tax assets to be utilized. Unrecognized deferred
tax assets are reassessed at each reporting date and are recognized
to the extent that it has become probable that future taxable profit
will allow all or part of the deferred tax assets to be recovered.
Deferred tax, however, is not recognized on temporary differences
that arise from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting income nor taxable
income or loss.
Deferred tax assets and liabilities are measured at the tax rate that
is expected to apply to the year when the asset is realized or the
liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the reporting date.
Current tax and deferred tax relating to items recognized directly in
equity is also recognized in equity and not in profit or loss.
Deferred tax assets and tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred taxes relate to the same taxable entity
and the same taxation authority.
Provisions
Provisions are recognized when the Company has a present
obligation (legal or constructive) where, as a result of a past event,
it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.
Contingencies
Contingent liabilities are not recognized but are disclosed in the
notes to the financial statements unless the possibility of an
outflow of resources embodying economic benefits is remote.
Contingent assets are not recognized but are disclosed in the notes
to the financial statements when the inflow of economic benefits is
probable. income; on the basis of systematic and rational allocation procedures
Equity
Capital stock is measured at par value for all shares issued and
outstanding. When the Company issues more than one class of
stock, a separate account is maintained for each class of stock and
the number of shares issued.
When the shares are sold at premium, the difference between
the proceeds and the par value is credited to ‘Additional paid-in
capital’ account. When shares are issued for a consideration other
than cash, the proceeds are measured by the fair value of the
consideration received. In case the shares are issued to extinguish
or settle the liability of the Company, the shares shall be measured
either at the fair value of the shares issued or fair value of the
liability settled, whichever is more reliably determinable.
Direct cost incurred related to the equity issuance, such as
underwriting, accounting and legal fees, printing costs and taxes
are chargeable to ‘Additional paid-in capital’ account. If additional
paid-in capital is not sufficient, the excess is charged against
‘Retained Earnings’.
Retained earnings represent accumulated net income of the
Company, net of dividends paid.
Deposit for Future Stock Subscription
Deposit for future stock subscription represents payments made
on subscription of shares which cannot be directly credited to
‘Capital stock’ pending registration with the SEC of the amendment
to the Articles of Incorporation increasing capital stock. The paid-
up subscription can be classified under equity if the nature of the
transaction gives rise to a contractual obligation of the Company
to deliver its own shares to the subscriber in exchange of the
subscription amount.
In addition, deposit for future stock subscription shall be classified
under equity if all of the following elements are present as at
reporting date:
a. The unissued authorized capital stock of the entity is insufficient
to cover the amount of shares indicated in the contract;
b. There is BOD approval on the proposed increase in authorized
capital stock (for which a deposit was received by the
corporation);
c. There is stockholders’ approval of said proposed increase; and
d. The application for the approval of the proposed increase has
been presented for filing or has been filed with the SEC.
Dividends
Dividends are recognized as a liability and deducted from equity
when declared and approved by the BOD of the Company and of the
BSP. Dividends for the year that are declared and approved after the
reporting date, if any, are dealt with as an event after the reporting
date and disclosed accordingly.
Expense Recognition
Expenses are recognized in profit or loss when decrease in future
economic benefit related to a decrease in an asset or an increase
in a liability has arisen that can be measured reliably. Expenses
are recognized in profit or loss: on the basis of a direct association
between the costs incurred and the earning of specific items of
when economic benefits are expected to arise over several accounting
periods and the association with income can only be broadly or
indirectly determined; or immediately when an expenditure produces
POSITIVE RESULTS 37
 no future economic benefits or when, and to the extent that, future
economic benefits do not qualify or cease to qualify, for recognition
in the statements of financial position as an asset.
Events after the Reporting Period
Post year-end events that provide additional information about
the Company’s financial position at the reporting date (adjusting
events) are reflected in the financial statements. Post year-end
events that are not adjusting events are disclosed in the notes to
the financial statements when material.
Standards Issued but not yet Effective
Pronouncements issued but not yet effective are listed below.
Unless otherwise indicated, the Company does not expect that the
future adoption of the said pronouncements will have a significant
impact on its financial statements. The Company intends to adopt
the following pronouncements when they become effective.
Effective beginning on or after January 1, 2017
• Amendments to PAS 7, Statement of Cash Flows, Disclosure
Initiative
The amendments to PAS 7 require an entity to provide disclosures
that enable users of financial statements to evaluate changes
in liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes (such
as foreign exchange gains or losses). On initial application of the
amendments, entities are not required to provide comparative
information for preceding periods. Early application of the
amendments is permitted.
Application of amendments will result in additional disclosures
in the 2017 consolidated financial statements of the Group.
• Amendments to PAS 12, Income Taxes, Recognition of Deferred
Tax Assets for Unrealized Losses
The amendments clarify that an entity needs to consider
whether tax law restricts the sources of taxable profits against
which it may make deductions on the reversal of that deductible
temporary difference. Furthermore, the amendments provide
guidance on how an entity should determine future taxable
profits and explain the circumstances in which taxable profit
may include the recovery of some assets for more than their
carrying amount.
Entities are required to apply the amendments retrospectively.
However, on initial application of the amendments, the change
in the opening equity of the earliest comparative period may
be recognized in opening retained earnings (or in another
component of equity, as appropriate), without allocating
the change between opening retained earnings and other
components of equity. Entities applying this relief must disclose
that fact. Early application of the amendments is permitted.
Effective beginning on or after January 1, 2018
• Amendments to PFRS 2, Share-based Payment, Classification
and Measurement of Share-based Payment Transactions
The amendments to PFRS 2 address three main areas: the
38 HIGH PERFORMANCE
effects of vesting conditions on the measurement of a cash-
settled share-based payment transaction; the classification of a
share-based payment transaction with net settlement features
for withholding tax obligations; and the accounting where
a modification to the terms and conditions of a share-based
payment transaction changes its classification from cash settled
to equity settled.
On adoption, entities are required to apply the amendments
without restating prior periods, but retrospective application is
permitted if elected for all three amendments and if other criteria
are met. Early application of the amendments is permitted.
• Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9,
Financial Instruments, with PFRS 4
The amendments address concerns arising from implementing
PFRS 9, the new financial instruments standard before
implementing the forthcoming insurance contracts standard.
They allow entities to choose between the overlay approach and
the deferral approach to deal with the transitional challenges.
The overlay approach gives all entities that issue insurance
contracts the option to recognize in other comprehensive
income, rather than profit or loss, the volatility that could arise
when PFRS 9 is applied before the new insurance contracts
standard is issued. On the other hand, the deferral approach
gives entities whose activities are predominantly connected with
insurance an optional temporary exemption from applying PFRS
9 until the earlier of application of the forthcoming insurance
contracts standard or January 1, 2021.
The overlay approach and the deferral approach will only be
available to an entity if it has not previously applied PFRS 9.
• PFRS 15, Revenue from Contracts with Customers
PFRS 15 establishes a new five-step model that will apply
to revenue arising from contracts with customers. Under
PFRS 15, revenue is recognized at an amount that reflects
the consideration to which an entity expects to be entitled in
exchange for transferring goods or services to a customer. The
principles in PFRS 15 provide a more structured approach to
measuring and recognizing revenue.
The new revenue standard is applicable to all entities and will
supersede all current revenue recognition requirements under
PFRSs. Either a full or modified retrospective application is
required for annual periods beginning on or after January 1,
2018.
• PFRS 9, Financial Instruments (2014 or final version)
PFRS 9 reflects all phases of the financial instruments project
and replaces PAS 39, Financial Instruments: Recognition and
Measurement, and all previous versions of PFRS 9. The standard
introduces new requirements for classification and measurement,
impairment, and hedge accounting. PFRS 9 is effective for
annual periods beginning on or after January 1, 2018, with early
application permitted. Retrospective application is required, but
providing comparative information is not compulsory. For hedge
accounting, the requirements are generally applied prospectively,
with some limited exceptions.
 The adoption of PFRS 9 will have an effect on the classification
and measurement of the Company’s financial assets and
impairment methodology for financial assets, but will have no
impact on the classification and measurement of the Company’s
financial liabilities. The adoption will also have an effect on the
Company’s application of hedge accounting and on the amount
of its credit losses. The Company is currently assessing the
impact of adopting this standard.
• Philippine Interpretation IFRIC-22, Foreign Currency Transactions
and Advance Consideration
The interpretation clarifies that in determining the spot exchange
rate to use on initial recognition of the related asset, expense or
income (or part of it) on the derecognition of a non-monetary
asset or non-monetary liability relating to advance consideration,
the date of the transaction is the date on which an entity
initially recognizes the nonmonetary asset or non-monetary
liability arising from the advance consideration. If there are
multiple payments or receipts in advance, then the entity must
determine a date of the transactions for each payment or receipt
of advance consideration. The interpretation may be applied on
a fully retrospective basis. Entities may apply the interpretation
prospectively to all assets, expenses and income in its scope that
are initially recognized on or after the beginning of the reporting
period in which the entity first applies the interpretation or the
beginning of a prior reporting period presented as comparative
information in the financial statements of the reporting period
in which the entity first applies the interpretation.
Effective beginning on or after January 1, 2019
• PFRS 16, Leases
Under the new standard, lessees will no longer classify their
leases as either operating or finance leases in accordance
with PAS 17, Leases. Rather, lessees will apply the single-asset
model. Under this model, lessees will recognize the assets and
related liabilities for most leases on their balance sheets, and
subsequently, will depreciate the lease assets and recognize
interest on the lease liabilities in their profit or loss. Leases with
a term of 12 months or less or for which the underlying asset is
of low value are exempted from these requirements.
The accounting by lessors is substantially unchanged as the new
standard carries forward the principles of lessor accounting
under PAS 17. Lessors, however, will be required to disclose more
information in their financial statements, particularly on the risk
exposure to residual value.
Entities may early adopt PFRS 16 but only if they have also
adopted PFRS 15. When adopting PFRS 16, an entity is permitted
to use either a full retrospective or a modified retrospective
approach, with options to use certain transition reliefs.
The Company is currently assessing the impact of adopting PFRS
16.
Deferred effectivity
• Amendments to PFRS 10 and PAS 28, Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture
The amendments address the conflict between PFRS 10 and PAS
28 in dealing with the loss of control of a subsidiary that is sold
or contributed to an associate or joint venture. The amendments
clarify that a full gain or loss is recognized when a transfer to an
associate or joint venture involves a business as defined in PFRS 3,
Business Combinations. Any gain or loss resulting from the sale or
contribution of assets that does not constitute a business, however,
is recognized only to the extent of unrelated investors’ interests in
the associate or joint venture.
On January 13, 2016, the Financial Reporting Standards Council
postponed the original effective date of January 1, 2016 of the said
amendments until the International Accounting Standards Board
has completed its broader review of the research project on equity
accounting that may result in the simplification of accounting for
such transactions and of other aspects of accounting for associates
and joint ventures.
3. SIGNIFICANT ACCOUNTING JUDGMENTS AND
ESTIMATES
The preparation of the accompanying financial statements in
conformity with PFRS requires management to make judgments,
estimates and assumptions that affect the reported amounts in
the financial statements and accompanying notes. The judgments,
estimates and assumptions used in the accompanying financial
statements are based upon management’s evaluation of relevant
facts and circumstances as of the date of the financial statements.
Actual results could differ from such estimates.
Judgments and estimates are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
Judgments
In the process of applying the Company’s accounting policies,
management has made the following judgments, apart from
those involving estimates and assumptions, which have the most
significant effect on the amounts recognized in the financial
statements.
a. Finance leases
The Company, as a lessor, has entered into finance leases of
vehicles with its customers. The Company has determined that
it transfers all the significant risks and rewards of ownership as
the lease terms are for the major part of the economic life of
these properties which are leased out on finance leases.
Estimates
The key assumptions concerning the future and other key sources of
estimation uncertainty at the reporting date, that have a significant
risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed in
the following paragraphs.
a. Credit losses of loans and receivables
The Company reviews impairment of receivables on a monthly
basis. Impairment loss on receivables is determined on a
collective basis using the net flow rate methodology.
POSITIVE RESULTS 39
 In determining whether an impairment loss should be recorded are based on expected future inflation rates. Refer to Note 18
in the statement of comprehensive income, the Company makes for the details of assumptions used in the calculation.
judgments as to whether there is any observable data indicating
that there is a measurable decrease in the estimated future As of March 31, 2017 and 2016, the present value of the defined
cash flows from a portfolio of receivables financed and lease benefit obligation of the Company amounted to ₱44.4 million
contract receivables before the decrease can be identified with and ₱43.5 million, respectively. The Company has net retirement
an individual account in that portfolio. This observable data may liability amounting to ₱5.9 million as of March 31, 2017 and
include adverse changes in the payment status of borrowers in
₱1.0 million as of March 31, 2016 (see Note 18).
a group, or national or local economic conditions that correlate
with defaults on assets in the portfolio.
e. Recognition of deferred tax assets
Deferred tax assets are recognized for all deductible temporary
The amount and timing of recorded expenses for any period
differences to the extent that it is probable that taxable income
would differ if the Company made different estimates. An
will be available against which the losses can be utilized.
increase in allowance for credit losses would increase the
Significant management judgment is required to determine
recorded expenses and decrease the related asset account.
the amount of deferred tax assets that can be recognized,
based upon the likely timing and level of future taxable income
As of March 31, 2017 and 2016, the carrying value of loans
together with future tax planning strategies.
and receivables amounted to ₱48.3 billion and ₱36.7 billion,
respectively (see Note 6).
The Company has been in a taxable income position over the
past several years. The Company believes, based on its expected
As of March 31, 2017 and 2016, allowance for credit losses on
future taxable income that it is highly probable for temporary
loans and receivables amounted to ₱1.1 billion and ₱0.9 billion, differences to be realized in the future.
respectively (see Notes 6 and 10).
As of March 31, 2017 and 2016, the carrying value of the
b. Fair value of derivatives
recognized net deferred tax assets amounted to ₱301.9 million
The fair values of derivatives that are not quoted in active markets
and ₱262.3 million, respectively (see Note 19).
are determined using valuation techniques. Where valuation
techniques are used to determine fair values, they are validated
and periodically reviewed by qualified personnel independent
4. CASH AND CASH EQUIVALENTS AND DUE FROM
of the area that created them. All models are reviewed before
BANGKO SENTRAL NG PILIPINAS
they are used, and models are calibrated to ensure that outputs
reflect actual data and comparative market prices. To the extent
Cash and Cash Equivalents
practical, models use only observable data, however areas such
This account consists of:
as credit risk (both own and counterparty), volatilities and
correlations require management to make estimates. Changes in
assumptions about these factors could affect reported fair value 2017 2016
of financial instruments. Refer to Note 14 for the information Cash on hand ₱1,291,496 ₱919,117
on the fair value of the instrument.
Cash in banks (Note 21) 564,922,654 504,984,084
c. Valuation of assets held for sale Cash equivalents − 627,000,000
The Company’s assets held for sale are carried at the lower of
its carrying amount and fair value less costs to sell. Fair value ₱566,214,150 ₱1,132,903,201
is based on the valuation performed by the internal appraiser.
Valuation of assets held for sale is ascertained using the market Cash in bank earns annual interest ranging from 0.1% to 1.5% in
data approach, wherein current sales prices of identical vehicles, 2017 and 0.3% to 1.5% in 2016.
together with the valuation opinions of conversant appraisers are
accumulated, compared and thoroughly analyzed. As of March Cash equivalents pertain to overnight placement that earns annual
31, 2017 and 2016, assets held for sale amounted to ₱120.6 interest ranging from 0.4% to 1.7% in 2017 and 1.4% to 1.6% in
2016.
million and ₱74.9 million, respectively (see Note 7).
Due from BSP
d. Present value of retirement obligation
As of March 31, 2017, due from BSP includes overnight deposit
The present value of the obligation depends on certain factors
facility that earns annual interest of 2.5%. It also includes non-
that are determined on an actuarial basis using a number of
interest bearing demand deposit account in 2017 and 2016.
assumptions. These include, among others, discount rates,
future salary increases, mortality rates, and future pension
Deposit substitutes are subjected to required reserves equivalent to
increases. Due to long term nature of this plan, such estimates
20.0%. The required reserves shall be kept in the form of deposits
are subject to significant uncertainty.
maintained in the Demand Deposit Accounts (DDAs) with the BSP
and any government securities which previously used as compliance
The assumed discount rate was determined using average market
until they mature. The Company was in compliance with such
yields on Philippine government bonds with terms consistent
regulations as of March 31, 2017 and 2016.
with the expected employee benefit payout as of reporting
date. The mortality rate is based on publicly available mortality
The total available reserves booked under ‘Due from Bangko Sentral
tables and is modified accordingly with estimates of mortality
ng Pilipinas’ amounted to ₱8.8 billion and ₱7.0 billion in 2017 and
improvements. Future salary increases and pension increases
2016, respectively.

40 HIGH PERFORMANCE
Interest income on cash and cash equivalents consists of: Receivables financed earn fixed interest ranging from 6.0% to
19.9% in 2017 and from 6.1% to 22.8% in 2016 while finance lease
2017 2016 receivables earn fixed interest ranging from 5.1% to 16.03% in 2017
and from 6.3% to 16.0% in 2016. An account shall be considered
Cash in banks (Note 21) ₱3,916,252 ₱3,813,709 delinquent when after the arrival of a payment due date, the client
Cash equivalents 3,236,517 3,614,175 failed to settle the amount.
Due from BSP 15,105,912 − Receivables from customers are due in monthly installments
₱22,258,681 ₱7,427,884 with terms ranging from one (1) to five (5) years. The receivables
financed, net of unearned finance income, by contractual maturity
dates is analyzed as follows:
5. AVAILABLE-FOR-SALE INVESTMENTS
2017 2016
AFS investments include quoted equity shares. The carrying value
of the AFS investments amounted to ₱1.2 million and ₱1.5 million Due within 1 year ₱433,872,244 ₱493,522,427
as of March 31, 2017 and 2016, respectively. The changes in fair Due beyond 1 year but not
value recognized in OCI amounted to (₱0.30 million) in 2017 and beyond 5 years 7,757,502,285 5,619,425,470
₱0.50 million in 2016. ₱8,191,374,529 ₱6,112,947,897
The movements in unrealized gain on AFS investments follow:
The breakdown of the Company’s gross investment in finance lease
receivables by contractual maturity dates is analyzed as follows:
2017 2016
Balance at beginning of year ₱850,000 ₱350,000 2017 2016
Changes in fair value (300,000) 500,000 Gross investment in finance
Balance at end of year ₱550,000 ₱850,000 lease receivables
Due within 1 year ₱972,605,945 ₱847,764,770
Due beyond 1 year but not
6. LOANS AND RECEIVABLES beyond 5 years 45,338,294,699 32,399,104,460
This account consists of: 46,310,900,644 33,246,869,230
Residual value of leased
2017 2016 assets

Receivables from customers Due within 1 year 850,657,392 942,644,379

Receivables financed ₱9,591,882,533 ₱7,069,173,755 Due beyond 1 year but not

beyond 5 years 1,229,714,049 2,258,848,832
Unearned finance income (1,400,508,004) (956,225,858)
2,080,371,441 3,201,493,211
8,191,374,529 6,112,947,897
Unearned lease income
Finance lease receivables
Due within 1 year (39,376,589) (33,104,336)
Finance lease receivables 46,310,900,644 33,246,869,230
Due beyond 1 year but not
Residual value of leased beyond 5 years (7,353,234,035) (5,175,872,790)
assets 2,080,371,441 3,201,493,211
(7,392,610,624) (5,208,977,126)
48,391,272,085 36,448,362,441
Net investment in finance
Unearned lease income (7,392,610,624) (5,208,977,126) lease receivables ₱40,998,661,461 ₱31,239,385,315
40,998,661,461 31,239,385,315
49,190,035,990 37,352,333,212
Other receivables
Receivables from clients 203,893,046 205,399,843
Receivables from
employees 9,411,348 8,934,669
Accrued interest receivable 193,756 206,912
Others 764,731 734,658
214,262,881 215,276,082
Allowance for credit losses
(Note 10) (1,128,593,300) (861,595,679)
₱48,275,705,571 ₱36,706,013,615

POSITIVE RESULTS 41
 The net investment in finance lease receivables is analyzed as follows: d. when borrower and his co-maker or guarantor, are insolvent or
where their whereabouts are unknown, or their earnings power
2017 2016 is permanently impaired;
e. accrued interest receivable that remain uncollected after
Due within 1 year ₱1,783,886,748 ₱1,757,304,813 six months from the maturity date of such loans to which it
Due beyond 1 year but not accrues; and
beyond 5 years 39,214,774,713 29,482,080,502 f. accounts receivable past due for 361 days or more.
₱40,998,661,461 ₱31,239,385,315
As of March 31, 2017 and 2016, the Company’s allowance for
credit losses for accounts receivable is in compliance with the
Interest income on loans and receivables consists of: requirements of RA No. 8556.

2017 2016 BSP reporting

As of March 31, 2017 and 2016, information on concentration of
Receivables financed ₱695,597,286 ₱582,521,685
receivables from customers (net of unearned income) excluding
Finance lease receivables 3,195,973,241 2,545,402,857 residual value of leased assets as to economic activity of the
₱3,891,570,527 ₱3,127,924,542 Company follows:
2017 2016
A reconciliation of the allowance for credit losses by class of Amount % Amount %
receivables from customers follows: Other community and
personal activities ₱8,360,924,805 17.70 ₱3,611,169,542 10.60

2017 Wholesale and retail trade 7,837,153,339 16.60 5,744,587,058 16.80

Finance Social work activities 7,086,880,322 15.00 4,785,962,231 14.00

Receivables lease Real estate, renting and
financed receivables Total business activities 6,209,330,572 13.20 6,896,695,535 20.20
Transportation, storage
Balances at beginning
and communication 5,180,767,639 11.00 3,968,298,805 11.60
of year ₱138,309,308 ₱723,286,371 ₱861,595,679
Education 3,243,081,524 6.90 2,094,118,560 6.10
Provisions (Note 10) 89,576,415 499,848,135 589,424,550
Financial intermediaries 2,293,429,278 4.90 1,959,463,122 5.70
Accounts written off (45,933,265) (276,493,664) (322,426,929) Manufacturing 1,962,093,723 4.20 1,661,172,326 4.90
Balances at end of year ₱181,952,458 ₱946,640,842 ₱1,128,593,300 Hotels and restaurants 1,679,981,689 3.60 1,105,005,932 3.20
Agricultural, hunting and
2016 forestry, fishing 1,311,254,647 2.80 837,222,785 2.50
Construction 1,217,164,290 2.60 942,803,701 2.80
Receivables Finance lease
financed receivables Total Electricity, gas and water 631,146,285 1.30 444,958,254 1.30

Balances at beginning Mining and quarrying 96,456,436 0.20 99,382,149 0.30

of year ₱116,655,794 ₱618,464,031 ₱735,119,825 ₱47,109,664,549 100.00 ₱34,150,840,000 100.00

Provisions (Note 10) 71,285,411 359,323,309 430,608,720

The BSP considers that concentration of credit exists when total
Accounts written off (49,631,897) (254,500,969) (304,132,866) loan exposure to a particular industry or economic sector exceeds
Balances at end of year ₱138,309,308 ₱723,286,371 ₱861,595,679 30.0% of total loan portfolio.

All accounts not identified as specifically impaired are subjected to As of March 31, 2017 and 2016, all of the Company’s receivables
collective testing. Collective testing of impairment loss is assessed from customers are secured by chattel mortgage.
using net flow rate methodology. As of March 31, 2017 and 2016,
there were no specifically impaired loans and receivables. As of March 31, 2017 and 2016, nonperforming loans (NPLs) not
fully covered by allowance for credit losses of the Company, as
Section 9(f) of RA No. 8556 requires that a 100.0% allowance for reported to BSP, follow:
credit losses should be set up for the following:
2017 2016
a. clean loans and advances past due for a period of more than 6
months; Total NPLs ₱1,336,562,471 ₱1,183,186,492
b. past due loans secured by collateral such as inventories, NPLs fully covered by allowance
receivables, equipment and other chattels that have declined for credit losses (582,418,039) (464,362,263)
in value by more than 50.0%, without the borrower offering
₱754,144,432 ₱718,824,229
additional collateral for the loans;
c. past due loans secured by real estate mortgage title to which
is subject to an adverse claim rendering settlement through
foreclosure doubtful;

42 HIGH PERFORMANCE
Generally, NPLs refer to loans whose principal and/or interest is unpaid for ninety (90) days or more after due date or after they have become
past due in accordance with existing BSP rules and regulations. This shall apply to loans payable in lump sum and loans payable in quarterly,
semi-annual, or annual installments, in which case, the total outstanding balance thereof shall be considered nonperforming.

In the case of receivables that are payable in monthly installments, the total outstanding balance thereof shall be considered nonperforming
when three (3) or more installments are in arrears. In the case of receivables that are payable in weekly, or semi-monthly installments, the total
outstanding balance thereof shall be considered nonperforming at the same time that they become past due in accordance with existing BSP
regulations, i.e., the entire outstanding balance of the receivable shall be considered as past due when the total amount of arrearages reaches
more than 10.0% of the total receivable balance.

7. ASSETS HELD FOR SALE

The rollforward analysis of this account follows:

2017 2016
Cost
Balance at beginning of year ₱101,983,761 ₱50,500,511
Additions (Note 25) 1,239,242,105 822,358,026
Disposals and transfers (Note 8 and 25) (1,180,925,379) (770,874,776)
Balance at end of year 160,300,487 101,983,761
Allowance for impairment losses (Note 10)
Balance at beginning of year 27,039,076 13,795,582
Provision for impairment losses 180,167,866 95,712,861
Reversals (167,466,817) (82,469,367)
Balance at end of year 39,740,125 27,039,076
Net book value ₱120,560,362 ₱74,944,685

The Company’s assets held for sale consist of repossessed collaterals from customers who have defaulted in their respective loan accounts.
These are actively marketed for sale and are expected to be sold within one year from the date of its classification as assets held for sale.

‘Loss on sale of assets held for sale’ amounted to ₱149.5 million and ₱76.4 million in 2017 and 2016, respectively.

POSITIVE RESULTS 43
 8. PROPERTY AND EQUIPMENT

The composition and movements in this account follow:

2017
Furniture,
Leasehold Fixtures and Transportation
Improvements Equipment Equipment Total
Cost
Balances at beginning of year ₱44,326,180 ₱70,574,495 ₱33,579,529 ₱148,480,204
Acquisitions 11,453,270 21,816,904 6,223,642 39,493,816
Transfers (Notes 7 and 25) − − 17,725,766 17,725,766
Disposals − − (15,028,559) (15,028,559)
Balances at end of year 55,779,450 92,391,399 42,500,378 190,671,227
Accumulated depreciation and
amortization
Balances at beginning of year 31,068,433 57,970,141 18,870,903 107,909,477
Depreciation and amortization 5,899,531 8,067,804 6,268,050 20,235,385
Disposals − − (10,719,364) (10,719,364)
Balances at end of year 36,967,964 66,037,945 14,419,589 117,425,498
Net book value ₱18,811,486 ₱26,353,454 ₱28,080,789 ₱73,245,729

2016
Furniture,
Leasehold Fixtures and Transportation
Improvements Equipment Equipment Total
Cost
Balances at beginning of year ₱36,932,580 ₱59,493,195 ₱30,521,731 ₱126,947,506
Acquisitions 7,393,600 11,122,268 3,813,918 22,329,786
Transfers (Note 7 and 25) − − 3,637,782 3,637,782
Disposals − (40,968) (4,393,902) (4,434,870)
Balances at end of year 44,326,180 70,574,495 33,579,529 148,480,204
Accumulated depreciation and
amortization
Balances at beginning of year 26,210,070 52,404,608 17,053,818 95,668,496
Depreciation and amortization 4,858,363 5,606,501 5,484,945 15,949,809
Disposals − (40,968) (3,667,860) (3,708,828)
Balances at end of year 31,068,433 57,970,141 18,870,903 107,909,477
Net book value ₱13,257,747 ₱12,604,354 ₱14,708,626 ₱40,570,727

As of March 31, 2017 and 2016, the cost of the Company’s fully depreciated property and equipment still in use amounted to ₱80.5 million and
₱77.8 million, respectively.

44 HIGH PERFORMANCE
9. SOFTWARE COSTS AND OTHER ASSETS

Software Costs
Movements in software costs follow:

2017 2016
Cost
Balances at beginning of year ₱93,164,377 ₱69,017,600
Additions 9,351,436 24,146,777
Balances at end of year 102,515,813 93,164,377
Accumulated amortization
Balances at beginning of year 60,513,042 53,778,452
Amortization 7,117,034 6,734,590
Balance at end of year 67,630,076 60,513,042
Net book value ₱34,885,737 ₱32,651,335

Amortization of software costs is included in the ‘Depreciation and amortization’ in the statements of comprehensive income.

As of March 31, 2017 and 2016, the cost of the Company’s fully amortized software still in use amounted to ₱53.3 million and ₱40.7 million,
respectively.

Other Assets Below is the breakdown of allowance for credit and impairment
This account consists of: losses:

2017 2016 2017 2016

Prepaid expenses ₱26,638,965 ₱12,887,053 Loans and receivables (Note 6)
Security deposits 14,613,994 12,191,288 Receivables financed ₱181,952,458 ₱138,309,308
Others 98,417 88,539 Finance lease receivables 946,640,842 723,286,371
₱41,351,376 ₱25,166,880 1,128,593,300 861,595,679
Assets held for sale (Note 7) 39,740,125 27,039,076
Prepaid expenses mainly consists of prepayments on office rent, IT
related costs, electronic documentary stamps and accommodation ₱1,168,333,425 ₱888,634,755
of certain executive employees.
Below is the breakdown of provision for credit and impairment losses:

2017 2016
10. ALLOWANCE FOR CREDIT AND IMPAIRMENT LOSS
Loans and receivables (Note 6)
Receivables financed ₱89,576,415 ₱71,285,411
2017 2016
Finance lease receivables 499,848,135 359,323,309
Balances at beginning of year
Loans and receivables 589,424,550 430,608,720

Receivables financed ₱138,309,308 ₱116,655,794 Assets held for sale (Note 7) 180,167,866 95,712,861

Finance lease receivables 723,286,371 618,464,031 ₱769,592,416 ₱526,321,581

861,595,679 735,119,825 With the foregoing level of allowance for credit and impairment
Assets held for sale 27,039,076 13,795,582 losses, management believes that the Company has sufficient
allowance to absorb any losses that may be incurred from the
888,634,755 748,915,407
noncollection or nonrealization of its receivables and assets held
Provision for credit and for sale.
impairment losses 769,592,416 526,321,581
Accounts written off (Note 6) (322,426,929) (304,132,866)
Reversal (Note 7) (167,466,817) (82,469,367)
279,698,670 139,719,348
Balance at end of year ₱1,168,333,425 ₱888,634,755

POSITIVE RESULTS 45
 application to enter into a US$50.0 million term loan agreement
11. LOANS PAYABLE
with Mizuho Bank Ltd. – Singapore Branch (Mizuho Singapore
Branch). The Company was also allowed to execute a cross-
This account consists of:
currency swap agreement on the approved USD term loan.

2017 2016 On November 27, 2015, the Company and Mizuho Singapore
Bank loans ₱35,118,471,104 ₱31,476,266,844 Branch entered into a term loan agreement where Mizuho
Singapore Branch granted the Company a committed term loan
Notes payable 5,005,982,501 1,614,530,906 facility in a maximum aggregate amount of US$50.0 million.
Bonds payable (Note 14) 3,682,921,102 - Details of the loan are as follows:
Bank loan from Mizuho
Bank – Singapore Principa
(Note 14) 2,499,381,275 1,146,186,286 Dates Drawn Maturity Date Amount
Corporate notes 1,493,683,363 1,490,471,208 US$25.0
Tranche 1 December 14, 2015 December 16, 2019 million
Fixed rate note 1,486,094,883 -
US$25.0
₱49,286,534,228 ₱35,727,455,244 Tranche 2 November 3, 2016 November 3, 2020 million

As of March 31, 2017 and 2016, the outstanding loans payable are Interest is payable semi-annually based on 6-month USD ICE LIBOR
unsecured. plus 50 basis points.

Bank loans The Company also entered into a cross-currency interest rate swap
Bank loans bear interest rates ranging from 2.2% to 5.0% in 2017 agreement with Mizuho-Manila Branch which was designated by
and 2.0% to 4.3% in 2016. As of March 31, 2017 and 2016, the the Company as cash flow hedge (see Note 14).
Company’s bank loans have maturity periods of 3 months to 5
years and 1 month to 4 years, respectively. Fixed Rate Notes
On March 24, 2017, the Company issued retail fixed rate notes
Notes payable amounting to ₱1.5 billion. The retail fixed rate notes bear interest
Notes payable pertains to retail notes issued by the Company that rates ranging from 3.5% to 3.9%. As of March 31, 2017, the
bear interest rates ranging from 1.1% to 3.9% in 2017 and 1.6% to Company’s retail fixed rate notes have maturity period of 15
3.9% in 2016. As of March 31, 2017 and 2016, the Company’s notes months to 18 months.
payable have maturity period of 1 month to 4 years and 1 month to
3 years, respectively. Corporate Note
On January 24, 2014 (the Issue Date), the Company issued fixed rate
Bonds payable notes amounting to ₱1.5 billion. The fixed rate notes bear interest
On May 18, 2016, the BSP approved the Company’s application to of 5.4% and will mature on January 25, 2019 but can be early
enter into a US$50.0 million private bond issue to be subscribed redeemed, at the option of the Company, on any interest payment
fully by Bank of Tokyo-Mitsubishi UFJ, Ltd (BTMU Japan). The date on or after the third anniversary of the Issue Date, subject to
Company was also allowed to execute a cross-currency swap the certain conditions, at the amount equivalent to the principal
agreement on the approved private bond issue. and all accrued interest due on the notes and a prepayment penalty
equivalent to 1.0% per annum to be computed on the remaining
The private bonds were subscribed by BTMU Japan under various term of the principal amount of the notes prepaid. The Company
subscription agreements as follows: is also required to maintain, at all times, a Capital Adequacy Ratio
(CAR) of not less than 10.0% or such other percentage as may be
Dates Drawn Maturity Date Principal Amount required by BSP. The Company is compliant with the minimum CAR
requirement (see Note 23).
Series 1 June 17, 2016 June 17, 2020 US$30.0 million
September 29, September 29, BTMU Peso Loan
US$20.0 million
Series 2 2016 2020 On August 12, 2013, the Company entered into a peso term loan
March 13, agreement with Bank of Tokyo – Mitsubishi UFJ (BTMU) Manila
US$25.0 million Branch amounting to ₱150.0 million. The interest is payable
Series 3 2017 March 16, 2021
quarterly at 2.65% per annum.
Interest on the private bond issue are payable quarterly based on
the 3-month USD Intercontinental Exchange London Interbank The BTMU Peso loan matured on August 12, 2015.
Offered Rate (USD ICE LIBOR) plus 2 basis points for Series 1 and
2 and the 3-month USD ICE LIBOR for Series 3. As of March 31, 2017 and 2016, the unamortized transaction costs
amounted to ₱189.4 million and ₱88.8 million, respectively.
The Company also entered into a cross-currency interest rate swap
agreements with BTMU Manila Branch which was designated by
the Company as cash flow hedge (see Note 14).

Bank Loan from Mizuho Singapore Branch

On November 10, 2015, the BSP approved the Company’s

46 HIGH PERFORMANCE
Interest expense on loans payable consists of: As of March 31, 2016, unamortized debt issue costs on the Notes
amounted to ₱0.08 million.
2017 2016
Interest expense on the Notes amounted to ₱5.1 million in 2017
Bank loans ₱1,260,958,956 ₱1,098,023,669 and ₱68.1 million in 2016.
Corporate note 85,523,479 85,736,942
Notes payable 82,233,423 44,552,461
13. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Bank loan from
Mizuho Bank- This account consists of:
Singapore 80,208,783 17,624,346
2017 2016
Bonds payable 68,574,554 −
Accounts payable (Note 21) ₱693,060,015 ₱484,710,213
Fixed rate notes 1,224,134 −
Accrued interest payable 233,494,098 200,618,891
BMTU loan − 1,469,960
Accrued expenses 81,274,944 66,575,866
₱1,578,723,329 ₱1,247,407,378
Withholding tax payable 21,113,588 11,388,944
Retirement liability
12. SUBORDINATED DEBT (Note 18) 5,921,139 958,732
Others 861,243 609,052
On April 28, 2011 (the Issue Date), the Company issued unsecured
subordinated notes (the Notes) amounting to ₱1.0 billion. The ₱1,035,725,027 ₱764,861,698
Notes bear an interest of 6.7% and matured on April 28, 2016 (the
Maturity Date). Accounts payable are composed of trade payables to dealers,
insurance and outsourcing companies which are non-interest
Among the significant terms and conditions of the Notes are: bearing and are normally settled on a 30-day term.

a. The Notes will be in minimum denominations of ₱50.0 million Accrued expenses pertain to accrual of gross receipts tax and fringe
and in integral multiples of ₱10.0 million, thereafter, each sold benefit tax, accrual of unbilled utilities, employees’ compensated
at 100.0% of the face value of the Notes for a total issue size of leaves and absences and accrual of BSP annual supervision fees.
₱1.0 billion.
Others consist of overages, SSS, Medicare, employees’ compensation
b. The fixed rate of 6.7% per annum, payable to the noteholders premium and home development mutual fund payable.
for the period from and including the Issue Date up to but
excluding the Maturity Date. The interest rate or the formulation
for calculating interest payments shall be fixed at the time of 14. DERIVATIVES
the issuance of the Notes and may not be linked to the credit
standing of the Company. The breakdown of derivative asset (liability) as of March 31, 2017
and 2016 follow:
c. The Notes shall not be redeemable or terminable at the instance
of any noteholder before the Maturity Date, except in cases of
2017 2016
bankruptcy and liquidation. Negotiations or transfers of the
Notes to one other than the Company prior to the Maturity Date Derivative asset ₱295,182,131 ₱−
shall not constitute pre-termination. Derivative liability (4,451,115) (18,582,447)

d. The Notes may only be sold, transferred or negotiated (whether ₱290,731,016 (₱18,582,447)
in whole or in part) to another qualified institutional investor
which is not a prohibited noteholder; provided, that in case of The movements in fair value changes of the derivative asset
non-banks without underwriting licenses, such negotiation or (liability) follow:
assignment shall be through banks or non-banks licensed to
be an underwriter or a securities dealer; provided further, that 2017 2016
in no case shall the Notes be negotiated or assigned to non-
qualified investors. Beginning balance (₱18,582,447) ₱23,423
Net changes in fair value of
e. The Notes constitute direct, unconditional, unsecured, and derivatives through other
subordinated peso-denominated obligations of the Company. comprehensive income 309,313,463 (18,582,447)
Claims of the noteholders in respect of the Notes shall at all Net changes in fair value of
times rank pari passu without any preference among themselves. derivatives through profit/
loss − (22,005)
Settlement − (1,418)
₱290,731,016 (₱18,582,447)

POSITIVE RESULTS 47
 Currency swap agreements with Mizuho Bank Ltd. Manila Branch
• On December 14, 2015, the Company entered into a currency
swap agreement with Mizuho-Manila Branch to hedge foreign
currency and interest rate risks in the foreign loan availed from
Mizuho Singapore Branch. Under the agreement, the Company,
on a semi-annual basis, pays fixed interest rate of 4.350% per
annum on the peso principal amounting to ₱1.2 billion and
receives floating interest rate at 6-months USD ICE LIBOR plus
0.5% on USD $25.0 million over a period of four (4) years from
December 14, 2015 to December 16, 2019. Effectively, under
the swap agreement, the Company swaps its USD-denominated
floating rate loans into peso fixed-rate loans. On the same
date, the Company designated the swap as effective hedging
instrument under a cash flow hedge relationship. As such, the
effective portion of the changes in fair value of the swaps was
recognized under other comprehensive income amounting
to ₱1.3 million in 2017 and ₱7.5 million in 2016, net of the
related deferred taxes. As of March 31, 2017 and 2016, the
positive (negative) fair value of the currency swap amounted
₱85.6 million and (₱18.6 million) included in “Derivative Assets
(Liabilities)”, respectively.
• On November 3, 2016, the Company entered into a currency
swap agreement with Mizuho-Manila Branch to hedge foreign
currency and interest rate risks in the foreign loan availed from
Mizuho Singapore Branch. Under the agreement, the Company,
on a semi-annual basis, pays fixed interest rate of 4.200% per
annum on the peso principal amounting to ₱1.2 billion and
receives floating interest rate at 6-months USD ICE LIBOR plus
0.5% on USD$25.0 million over a period of four (4) years from
November 3, 2016 to November 3, 2020. Effectively, under the
swap agreement, the Company swaps its USD-denominated
floating rate loans into peso fixed-rate loans. On the same
date, the Company designated the swap as effective hedging
instrument under a cash flow hedge relationship. As such, the
effective portion of the changes in fair value of the swaps was
recognized under other comprehensive income amounting to
₱9.6 million in 2017, net of the related deferred taxes. As of
March 31, 2017, the positive fair value of the currency swap
amounted ₱59.6 million included in “Derivative Assets”.
Currency swap agreements with Bank of Tokyo-Mitsubishi UFJ
(BTMU) Manila Branch
• On June 17, 2016, the Company entered into a currency swap
agreement with the BTMU Manila Branch to hedge foreign
currency and interest rate risks on the Series 1 private bonds
with BTMU Singapore Branch. Under the agreement, the
Company, on a quarterly basis, pays fixed interest rate of
3.6500% per annum on the peso principal amounting to ₱1.4
billion and receives floating interest rate at 3-months USD ICE
LIBOR plus 0.0200% per annum on USD$30.0 million over a
period of four (4) years from June 17, 2016 to June 17, 2020.
Effectively, under the swap agreement, the Company swaps
its USD-denominated floating rate loan into a peso fixed-rate
loan. On the same date, the Company designated the swap
as an effective hedging instrument under a cash flow hedge
relationship. As such, the effective portion of the changes in fair
value of the swaps was recognized under other comprehensive
income amounting to ₱0.2 million in 2017, net of the related
deferred taxes. As of March 31, 2017, the positive fair value
of the currency swap amounted ₱111.0 million included in
“Derivative Assets”.
48 HIGH PERFORMANCE
• On September 29, 2016, the Company entered into a currency
swap agreement with the BTMU Manila Branch to hedge
foreign currency and interest rate risks on the Series 2 private
bonds with BTMU Singapore Branch. Under the agreement,
the Company, on a quarterly basis, pays fixed interest rate of
3.3000% per annum on the peso principal amounting to ₱1.0
billion and receives floating interest rate at 3-months USD ICE
LIBOR plus 0.0200% per annum on USD$20.0 million over a
period of four (4) years from September 29, 2016 to September
29, 2020. Effectively, under the swap agreement, the Company
swaps its USD-denominated floating rate loan into a peso
fixed-rate loan. On the same date, the Company designated
the swap as effective hedging instrument under a cash flow
hedge relationship. As such, the effective portion of the
changes in fair value of the swap was recognized under other
comprehensive income amounting to ₱0.7 million in 2017. As
of March 31, 2017, the positive fair value of the currency swap
amounted ₱39.0 million included in “Derivative Assets”.
• On March 13, 2017, the Company entered into a currency
swap agreement with the BTMU Manila Branch to hedge
foreign currency and interest rate risks on the Series 3 private
bonds with BTMU Singapore Branch. Under the agreement,
the Company, on a quarterly basis, pays fixed interest rate of
3.4000% per annum on the peso principal amounting to ₱1.3
billion and receives floating interest rate at 3-months USD ICE
LIBOR per annum on USD $25.0 million over a period of four
(4) years from March 13, 2017 to March 16, 2021. Effectively,
under the swap agreement, the Company swaps its USD-
denominated floating rate loan into peso fixed-rate loan. On
the same date, the Company designated the swap as effective
hedging instrument under a cash flow hedge relationship. As
such, the effective portion of the changes in fair value of the
swaps was recognized under other comprehensive income
amounting to ₱0.8 million in 2017, net of the related deferred
taxes. As of March 31, 2017, the negative fair value of the
currency swap amounted ₱4.5 million included in “Derivative
Liability”.
Bank of Tokyo-Mitsubishi UFJ (BTMU) Peso Loan
On August 12, 2013, the Company executed a peso-denominated
interest rate swap amounting to ₱150.0 million (notional amount)
with BTMU. The Company pays fixed quarterly interest at 2.7%
and receives 3-month Philippines interbank reference rate plus
45 basis points. Net changes in fair value of derivatives through
profit or loss are included under ‘Other income’ in the statements of
comprehensive income amounting to nil in 2017 and a loss of ₱0.02
million in 2016. The Company accounted for this swap at FVPL.
The movements in cash flow hedge reserve follow:
15. DEPOSITS ON LEASE CONTRACTS

2017 2016 Deposits on lease contracts consist of deposits from lessees and
Beginning balance ₱10,667,553 ₱− customers of finance lease receivables to serve as security for the
prompt and faithful performance of the terms and conditions of the
Net unrealized gain (loss) on contracts. Such deposits are applied as lease payments at the end of
cash flow hedges 309,313,463 (18,582,447) the lease term subject to terms and conditions of the contract.
Net losses (gains) on cash flow
hedges reclassified to profit The maturity information of deposit on lease contracts follow:
or loss (294,175,000) 29,250,000
2017 2016
Ending balance (gross of tax) 25,806,016 10,667,553
Within 1 year ₱850,657,392 ₱942,541,629
Deferred tax (7,741,805) (3,200,266) Beyond 1 year but
Ending balance (net of tax) ₱18,064,211 ₱7,467,287 not beyond 5 years 1,229,714,049 2,258,848,832
₱2,080,371,441 ₱3,201,390,461

16. MATURITY ANALYSIS OF ASSETS AND LIABILITIES

The following tables present the assets and liabilities as of March 31, 2017 and 2016 analyzed according to when they are expected to be
recovered or settled within one year and beyond one year from the reporting date:

2017 2016
Due within Due beyond Total Due within Due beyond Total
one year one year one year one year
Financial Assets
Cash and cash equivalents ₱566,214,150 ₱– ₱566,214,150 ₱1,132,903,201 ₱– ₱1,132,903,201
Due from BSP 9,031,753,912 – 9,031,753,912 6,983,598,916 – 6,983,598,916
AFS investments – 1,200,000 1,200,000 – 1,500,000 1,500,000
Loans and receivables
Receivables from customers
Receivables financed 3,502,409,630 6,089,472,903 9,591,882,533 2,898,705,251 4,170,468,504 7,069,173,755
Finance lease receivables 15,551,499,379 32,839,772,706 48,391,272,085 11,947,258,150 24,501,104,291 36,448,362,441
Other receivables
Receivables from clients 203,893,046 − 203,893,046 205,399,843 − 205,399,843
Receivables from
employees 3,188,436 6,222,912 9,411,348 2,639,276 6,295,393 8,934,669
Accrued interest
receivable 193,756 − 193,756 206,912 − 206,912
Others 764,731 − 764,731 734,658 − 734,658
Derivative asset - 295,182,131 295,182,131 − − −
Other asset
Security deposits - 14,613,994 14,613,994 − 12,191,288 12,191,288
28,859,917,040 39,246,464,646 68,106,381,686 23,171,446,207 28,691,559,476 51,863,005,683
Nonfinancial Assets
Assets held for sale 120,560,362 – 120,560,362 74,944,685 – 74,944,685
Property and equipment - net – 73,245,729 73,245,729 – 40,570,727 40,570,727
Software costs - net – 34,885,737 34,885,737 – 32,651,335 32,651,335
Deferred tax assets – 301,852,558 301,852,558 – 262,318,548 262,318,548
Other assets
Prepaid expenses 26,638,965 − 26,638,965 12,880,142 6,911 12,887,053

(Forward)

POSITIVE RESULTS 49
 2017 2016
Due within Due beyond Total Due within Due beyond Total
one year one year one year one year
Withholding tax receivable ₱98,417 ₱− ₱98,417 ₱88,539 ₱– ₱88,539
147,297,744 409,984,024 557,281,768 87,913,366 335,547,521 423,460,887
Less: Unearned finance and
lease income 3,935,411,202 4,857,707,426 8,793,118,628 2,871,306,294 3,293,896,690 6,165,202,984
Allowance for credit and
impairment losses 95,087,174 1,033,506,126 1,128,593,300 72,076,226 789,519,453 861,595,679
₱24,976,716,408 ₱33,765,235,118 ₱58,741,951,526 ₱20,315,977,053 ₱24,943,690,854 ₱45,259,667,907
Financial Liabilities
Loans payable
Bank loans ₱14,139,852,697 ₱20,978,618,407 ₱35,118,471,104 ₱11,690,717,446 ₱19,785,549,398 ₱31,476,266,844
Notes payable 4,661,656,077 344,326,424 5,005,982,501 1,150,347,062 464,183,844 1,614,530,906
BTMU Loan USD – 3,682,921,102 3,682,921,102 − – –
Mizuho Term Loan – 2,499,381,275 2,499,381,275 − 1,146,186,286 1,146,186,286
Corporate note – 1,493,683,363 1,493,683,363 – 1,490,471,208 1,490,471,208
Fixed Rate Notes – 1,486,094,883 1,486,094,883 – – –
18,801,508,774 30,485,025,454 49,286,534,228 12,841,064,508 22,886,390,736 35,727,455,244
Subordinated debt – – – 999,919,120 – 999,919,120
Derivative liability – 4,451,115 4,451,115 – 18,582,447 18,582,447
Accounts payable and other
liabilities
Accounts payable 693,060,015 – 693,060,015 484,710,213 – 484,710,213
Accrued interest payable 233,168,089 326,009 233,494,098 199,983,002 635,889 200,618,891
Accrued expenses 43,138,474 – 43,138,474 34,595,763 – 34,595,763
Deposits on lease contracts 850,657,392 1,229,714,049 2,080,371,441 942,541,629 2,258,848,832 3,201,390,461
20,621,532,744 31,719,516,627 52,341,049,371 15,502,814,235 25,164,457,904 40,667,272,139
Nonfinancial Liabilities
Income tax payable 83,124,104 – 83,124,104 19,851,724 – 19,851,724
Accounts payable and other
liabilities
Accrued expenses 44,057,609 – 44,057,609 32,938,835 – 32,938,835
Withholding tax payable 21,113,588 – 21,113,588 11,388,944 – 11,388,944
Other liabilities 861,243 – 861,243 609,052 – 609,052
Deposit for Future Subscription – 1,200,000,000 1,200,000,000 – – –
149,156,544 1,200,000,000 1,349,156,544 64,788,555 – 64,788,555
₱20,770,689,288 ₱32,919,516,627 ₱53,690,205,915 ₱15,567,602,790 ₱25,164,457,904 ₱40,732,060,694

50 HIGH PERFORMANCE
17. SERVICE FEES AND OTHER INCOME

This account consists of:

2017 2016
Service fees ₱165,423,748 ₱141,771,684
Recoveries from accounts written off 71,562,741 31,064,810
Others 3,684,677 2,889,022
₱240,671,166 ₱175,725,516

Service and other fees include income from late payments and penalty charges.

Others include gain on sale of property and equipment, foreign exchange gains, changes in fair value of derivatives and other miscellaneous
income.

18. RETIREMENT PLAN

The Company has a funded, noncontributory benefit retirement plan covering all its employees with regular employment status.

Changes in net retirement liability in are as follows:

Remeasurements in other comprehensive income

Return on
plan assets Actuarial
Net benefit cost in statement of income (excluding changes arising
amount from changes
Current Benefits included in in financial March 31,
April 1, 2016 service cost* Net interest* Subtotal paid net interest) assumptions Subtotal 2017
Present value of defined
benefit obligation ₱43,462,029 ₱7,952,861 ₱2,503,413 ₱10,456,274 (₱4,802,270) ₱– (₱4,702,971) (₱4,702,971) ₱44,413,062
Fair value of plan assets (42,503,297) – (2,309,885) (2,309,885) 4,802,270 1,518,989 – 1,518,989 (38,491,923)
Net defined benefit
liability (Note 13) ₱958,732 ₱7,952,861 ₱193,528 ₱8,146,389 – ₱1,518,989 (₱4,702,971) (₱3,183,982) ₱5,921,139

*Current service cost and net interest are included in ‘Compensation and fringe benefits’

Changes in net retirement asset in 2016 are as follows:

Remeasurements in other comprehensive income

Return on
plan assets Actuarial
Net benefit cost in statement of income (excluding changes arising
amount from changes Changes in
Current Benefits included in in financial the effect of March 31,
April 1, 2015 service cost* Net interest* Subtotal paid net interest) assumptions asset ceiling Subtotal 2016
Present value of
defined benefit
obligation ₱34,288,055 ₱5,676,168 ₱2,022,995 ₱7,699,163 (₱748,792) ₱– ₱2,223,603 ₱– ₱2,223,603 ₱43,462,029
Fair value of plan
assets (43,411,709) – (2,539,201) (2,539,201) 748,792 2,698,821 – – 2,698,821 (42,503,297)
(9,123,654) 5,676,168 (516,206) 5,159,962 – 2,698,821 2,223,603 – 4,922,424 958,732
Restrictions
on asset
recognized 689,674 – 40,691 40,691 – – – (730,365) (730,365) –
Net defined benefit
liability (asset)
(Note 13) (₱8,433,980) ₱5,676,168 (₱475,515) ₱5,200,653 ₱– ₱2,698,821 ₱2,223,603 ₱730,365 ₱4,192,059 ₱958,732
*Current service cost and net interest are included in ‘Compensation and fringe benefits’

POSITIVE RESULTS 51
 The fair value of plan assets by each classes as at the end of the claim arises and the retirement fund is insufficient to pay the claim,
reporting period are as follows: the shortfall will then be due and payable from the Company to the
retirement fund.
2017 2016
The Company does not expect to contribute to the defined pension
Cash and cash equivalents ₱1,266,756 ₱1,139,695 plan in 2017.
Financial assets at FVPL
The average duration of the defined benefit obligation at the end of
Unitized Investment Trust
the reporting period is 9.2 years and 20.6 years in 2017 and 2016,
Funds (UITF) 461,587 -
respectively.
Available-for-sale securities
Government securities 27,598,842 31,749,034 Shown below is the maturity analysis of the undiscounted benefit
payments:
Other securities and debt
instruments 8,920,520 9,342,742
2017 2016
36,519,362 41,091,776
Less than 1 year ₱- ₱-
Accrued interest receivable 275,833 307,396
More than 1 year to 5 years 24,012,048 7,069,727
Total assets 38,523,538 42,538,867
More than 5 years 52,880,486 50,231,000
Accrued expenses (31,615) (35,570)
Fair value of plan assets ₱38,491,923 ₱42,503,297
19. INCOME TAXES
All debt instruments held have quoted prices in active market.
The remaining plan assets do not have quoted market prices in Provision for income tax consists of:
active market.
2017 2016
The cost of defined benefit pension plans as well as the present value
Current
of the pension obligation are determined using actuarial valuations.
The actuarial valuation involves making various assumptions. The Regular ₱292,532,592 ₱254,110,880
principal assumptions used in determining pension obligations for Final 4,443,884 1,487,008
the defined benefit plans are shown below:
296,976,476 255,597,888

2017 2016 Deferred (46,303,321) (65,303,078)

Discount rates 6.03% 5.76% ₱250,673,155 ₱190,294,810

Future salary increases 7.46% 7.00%

The components of net deferred tax assets follow:
The sensitivity analysis below has been determined based on
reasonably possible changes of each significant assumption on the 2017 2016
defined benefit obligation as of the end of the reporting period, Deferred tax assets:
assuming if all other assumptions were held constant:
Allowance for credit and
impairment losses ₱350,500,028 ₱266,590,427
2017 2016
Retirement liability 1,776,341 -
Percentage Amount Percentage Amount
Accrued expenses 1,926,362 1,914,846
Discount rates +100 bps (₱3,804,463) +100 bps (₱4,579,112)
Excess of rent expense over
-100 bps 4,368,485 -100 bps 5,337,085 payment 1,015,712 868,326
Pension cost 485,027 287,620
Future salary 355,703,470 269,661,219
increases +100 bps 3,814,887 +100 bps 4,793,720
Deferred tax liabilities:
-100 bps (3,408,527) -100 bps (4,227,795)
Debt issue cost 46,070,404 4,111,452
Cash flow hedge reserve 7,741,804 3,200,266
Attrition rate 72.00% 31,979,238 46.00% 20,007,799
Unrealized foreign exchange
gain 38,704 30,953
The Retirement Plan Trustee has no specific matching strategy
between the plan assets and the plan liabilities. 53,850,912 7,342,671
₱301,852,558 ₱262,318,548
The Company is not required to pre-fund the future defined benefits
payable under the retirement plan before they become due. For this
reason, the amount and timing of contributions to the retirement
fund are at the Company’s discretion. However, in the event a benefit

52 HIGH PERFORMANCE
Under current tax regulations, the maximum amount of
20. LEASE COMMITMENTS
entertainment, amusement and recreation (EAR) expenses
allowable as deduction from gross income for purposes of
The Company currently leases both of the office premises
income tax computation shall not exceed 1% of the gross
it occupies. The contracts for the 42nd and 32nd floors in GT
revenue of the Company. EAR expenses incurred in 2017 and
Tower expire on June 30, 2020 and June 30, 2017, respectively.
2016 amounted to ₱1.4 million and ₱3.4 million, respectively.
The contracts are renewable upon mutual agreement
between the Company and the lessor. In 2017 and 2016, rent
The reconciliation of provision for income tax computed at the
expense, which is included under ‘Occupancy’, amounted to
statutory corporate income tax rate to provision for income tax
₱34.7 million and ₱29.6 million, respectively.
shown in the statements of comprehensive income follows:
The leasehold rental commitments of the Company follow:
2017 2016
At statutory income tax rate ₱229,067,526 ₱208,685,694 2017 2016
Adjustments for: Within 1 year ₱30,137,429 ₱30,578,502
Unrecognized deferred tax 20,490,864 (18,753,412) Beyond 1 year 59,261,326 66,073,280
Nondeductible expenses 1,144,876 368,524 ₱89,398,755 ₱96,651,782
Nondeductible interest
expense 2,203,610 735,361
Interest income subjected to
final tax (2,233,721) (741,357)
₱250,673,155 ₱190,294,810

21. RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence
over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control
or common significant influence (referred to as affiliates).

In the normal course of business, the Company enters into transactions with its related parties principally consisting of advances and other
borrowings. Under RA No. 8556, Financing Company Act, the Company’s amount of credit accommodation to its directors, officers, stockholders
and other related parties should not exceed 15.0% of its net worth. In 2017 and 2016, the Company has complied with this regulatory
requirement.

The year-end account balances with respect to related parties included in the financial statements follow:

2017
Amount/ Outstanding Nature/Terms and Conditions
Category Volume Balance
Stockholder
TFSC (Parent Company)
Accounts payable ₱− ₱213,430 Amount payable to TFSC relating to billing for the support
services being provided to the Company
Deposit for future subscription − 720,000,000 Amount of payable relating to deposit for future
subscription of capital stock
Management and other 1,218,995 − Expense incurred relating to billing for the support services
professional fees provided by TFSC & Asia Pacific Region (located at Toyota
Leasing Thailand) to the Company
GT Capital Holdings, Inc. Amount of payable relating to deposit for future
Deposit for future subscription − 480,000,000 subscription of capital stock
Subsidiaries of the Stockholder
Metropolitan Bank & Trust Company
(MBTC)
Cash in bank 45,318,617 195,442,044 Demand deposit account with annual interest of 0.5%
Interest income 366,823 − Interest earned from the deposit account

(Forward)

POSITIVE RESULTS 53
 2017
Amount/ Outstanding Nature/Terms and Conditions
Category Volume Balance
Philippine Savings Bank (PSBank)
Cash in bank ₱1,681,976 ₱4,309,420 Demand deposit account with annual interest of 0.5%
Interest income 43,509 − Interest earned from the deposit account
Federal Land, Inc.
Accounts payable − 387,805 Accrual for office rental and maintenance fee
Occupancy expenses 31,069,791 − Expenses incurred pertaining to office rental and
maintenance fees
Key Management Personnel
Salaries and wages
Salaries and other short-term 45,012,568 − Salaries and other short-term benefits for its key
benefits management personnel
Post-employment benefits 4,421,942 − The post-employment benefits for its key management
personnel

2016
Amount/ Outstanding Nature/Terms and Conditions
Category Volume Balance
Stockholder
TFSC (Parent Company)
Accounts payable ₱− ₱157,913 Amount payable to TFSC relating to billing for the support
services being provided to the Company
Management and other 322,745 − Expense incurred relating to billing for the support services
professional fees provided by TFSC to the Company
Subsidiaries of the Stockholder
Metropolitan Bank & Trust
Company (MBTC)
Cash in bank (4,840,646) 150,123,427 Demand deposit account with annual interest of 0.5%
Interest income 207,129 − Interest earned from the deposit account
Philippine Savings Bank (PSBank)
Cash in bank 368,111 2,627,444 Demand deposit account with annual interest of 0.5%
Interest income 33,255 - Interest earned from the deposit account
Federal Land, Inc.
Accounts payable - 1,226,552 Accrual for office rental and maintenance fee
Occupancy expenses 22,350,124 - Expenses incurred pertaining to office rent and
maintenance fees
Key Management Personnel
Salaries and wages
Salaries and other short-term 33,544,152 − Salaries and other short-term benefits for its key
benefits management personnel
Post-employment benefits 8,134,181 – The post-employment benefits for its key management
personnel

Existing banking regulations limit the amount of individual loans to directors, officers, stockholders, and related interests (DOSRI), 70.0% of
which must be secured, to the total of their respective deposits. Such limit does not apply to loans secured by assets considered as non-risk as
defined in the regulations. In the aggregate, loans to DOSRI generally should not exceed the respective total regulatory capital or 15.0% of total
loan portfolio, whichever is lower. BSP Circular No. 423 dated March 15, 2004 amended the definition of DOSRI accounts.

54 HIGH PERFORMANCE
BSP Circular No. 560 which became effective on February 22, 2007 provides the rules and regulations that govern loans, other credit
accommodations and guarantees granted to subsidiaries and affiliates of the banks/quasi-banks. Under the said Circular, the total outstanding
exposures to each of the said subsidiaries and affiliates shall not exceed 10.0% of the lending bank's/quasi-bank’s net worth, the unsecured
portion of which shall not exceed 5.0% of such net worth. Further, the total outstanding exposures to subsidiaries and affiliates shall not exceed
20.0% of the net worth of the lending bank/quasi-bank; and the subsidiaries and affiliates of the lending bank/quasi-bank are not related
interest of any director, officer and/or stockholder of the lending institution, except where such director, officer or stockholder sits in the BOD
or is appointed officer of such corporation as representative of the bank/quasi-bank.

As of March 31, 2017 and 2016, the Company has no DOSRI accounts.

Transactions with Retirement Plans

Under PFRS, certain post-employment benefit plans are considered as related parties. The Company’s retirement plan is in the form of a trust
administered by MBTC. The carrying value of the fund which approximates its fair value follows:

2017 2016
Investment in securities ₱36,980,949 ₱41,091,776
Cash and cash equivalents 1,266,756 1,139,695
Accrued interest receivable 275,833 307,396
Liabilities (31,615) (35,570)
₱38,491,923 ₱42,503,297

22. FAIR VALUE MEASUREMENT

The methods and assumptions used by the Company in estimating the fair value of the financial instruments are:

Cash and cash equivalents, Due from BSP and Other receivables - Due to the short-term nature of the instruments, the fair values approximate
the carrying amounts as of the reporting date.

AFS investments - Fair values are generally based on quoted market prices.

Loans and receivables - Fair value was computed using the discounted cash flow method. The discount rate used was the PDST-R2 rate plus
350 basis points (bps).

Loans payable and subordinated debt - Fair value was computed using the discounted cash flow method. The discount rate used was the zero
curve for PDST-R2 rate plus 200 bps.

Derivative financial instruments - The fair values of cross currency interest rate swap transactions are derived using acceptable valuation
methods. The valuation assumptions are based on market conditions existing at the reporting dates.

Accounts payable and other liabilities - Due to the short-term nature of the transactions, the fair value approximates the carrying amount as
of the reporting date.

2017
Fair Value
Carrying
Value Level 1 Level 2 Level 3 Total
Assets and liabilities measured at
fair value:
Financial assets:
Available-for-sale investments ₱1,200,000 ₱1,200,000 ₱− ₱− ₱1,200,000
Derivative assets 295,182,131 − 295,182,131 − 295,182,131
Financial liability:
Derivative liability 4,451,115 − 4,451,115 − 4,451,115

(Forward)

POSITIVE RESULTS 55
 2017
Fair Value
Carrying
Value Level 1 Level 2 Level 3 Total
Assets and liabilities for which fair
value is disclosed:
Financial assets:
Loans and receivables
Receivables from customers
Receivables financed - net ₱8,009,422,071 ₱− ₱− ₱8,499,547,317 ₱8,499,547,317
Finance lease receivables -
net 40,052,020,619 − − 42,492,110,456 42,492,110,456
Financial liabilities:
Loans payable
Bank loans 35,118,471,104 − − 34,307,561,431 34,307,561,431
Corporate note 1,493,683,363 − − 1,394,383,710 1,394,383,710
Notes payable 5,005,982,501 − − 4,976,618,267 4,976,618,267
Mizuho Term Loan 2,499,381,275 − − 2,383,356,438 2,383,356,438
Fixed Rate Notes 1,486,094,883 − − 1,582,497,173 1,582,497,173
BTMU Loan USD 3,682,921,102 − − 3,394,050,053 3,394,050,053
Deposit on lease contracts 2,080,371,441 − − 1,925,751,891 1,925,751,891

2016

Carrying Fair Value

Value Level 1 Level 2 Level 3 Total
Assets and liabilities measured at
fair value:
Financial assets:
Available-for-sale investments ₱1,500,000 ₱1,500,000 ₱− ₱− ₱1,500,000
Derivative asset 18,582,447 − 18,582,447 − 18,582,447
Assets and liabilities for which fair
value is disclosed:
Financial assets:
Loans and receivables
Receivables from customers
Receivables financed - net 5,974,638,589 − − 7,138,130,719 7,138,130,719
Finance lease receivables - net 30,516,098,944 − − 35,791,361,960 35,791,361,960
Financial liabilities:
Loans payable
Bank loans 32,622,453,130 − − 32,011,819,090 32,011,819,090
Corporate note 1,490,471,208 − − 1,506,369,459 1,506,369,459
Notes payable 1,614,530,906 − − 1,600,780,641 1,600,780,641
Subordinated debt 999,919,120 − − 1,030,420,992 1,030,420,992
Deposit on lease contracts 3,201,390,461 − − 2,863,694,555 2,863,694,555

As of March 31, 2017 and 2016, no transfers were made among the three levels in fair value hierarchy.

56 HIGH PERFORMANCE
23. CAPITAL MANAGEMENT AND FINANCIAL Regulatory Reporting
PERFORMANCE RATIOS The Company has started its operations as a Quasi-bank effective
April 1, 2009. Thus, the Company began to actively manage its
capital in accordance with regulatory requirements of BSP. The
Shares Amount primary objective of which is to ensure that the Company maintains
2017 2016 2017 2016 adequate capital to cover risks inherent to its quasi-banking
activities without prejudice to optimizing shareholder’s value.
Authorized
Common Under existing BSP regulation, the capital accounts of the Company
stock – should not be less than an amount equal to 10.0% of its risk assets.
₱100 par Risk assets consist of total assets less cash on hand, due from BSP,
value 17,000,000 17,000,000 loans covered by hold-out on or assignment of deposits, loans or
acceptances under letters of credit to the extent covered by margin
Common stock deposits, and other non-risk items as determined by the Monetary
issued and Board of the BSP.
outstanding
Balance at The following table sets the Company’s regulatory capital as reported
beginning to BSP as at March 31, 2017 and 2016 (amounts in thousands):
of year 17,000,000 10,000,000 ₱1,700,000,000 ₱1,000,000,000
Issuance of 2017 2016
stocks - 7,000,000 - 700,000,000 Actual Required Actual Required
Balance at end Tier 1 capital ₱5,949,343 ₱4,264,439
of year 17,000,000 17,000,000 ₱1,700,000,000 ₱1,700,000,000
Tier 2 capital 450,863 329,112
Capital Management Gross qualifying
The primary objective of the Company’s capital management is capital 6,400,206 4,593,551
to ensure that it maintains a strong credit rating and healthy Less Required
capital ratios in order to support its business and maximize deductions 301,853 262,319
shareholder value. Total qualifying
capital ₱6,098,353 ₱300,000 ₱4,331,232 ₱300,000
The Company manages its capital structure and makes
Risk weighted assets ₱48,478,556 ₱35,650,955
adjustments to it, in light of changes in economic conditions. To
maintain or adjust the capital structure, the Company may adjust Tier 1 capital ratio 12.27% 11.96%
the dividend payment to shareholders or issue new shares. No Total capital ratio 13.20% 12.88%
changes were made in the objectives, policies or processes for
the years ended March 31, 2017 and 2016. In 2017 and 2016, the Company complied with the required capital
adequacy ratio of the BSP.
The Company considers the following as capital:
Under the Financing Company Act, the Company is required to
2017 2016 maintain the following capital requirements:
Capital stock ₱1,700,000,000 ₱1,700,000,000
• Minimum paid-up capital of ₱10.0 million; and
Retained earnings 3,333,819,559 2,820,934,295 • Additional capital requirements for each branch of ₱1.0 million
Deposit for future subscription 1,200,000,000 − million for branches established in Metro Manila, ₱0.5 million for
branches established in other classes of cities and ₱0.2 million
₱6,233,819,559 ₱4,520,934,295 for branches established in municipalities.

The Company monitors capital using debt-to-equity ratio. The As of March 31, 2017 and 2016, the Company was in compliance
Company’s target debt-to-equity ratio is 10:1. The Company's with this minimum paid-up capital.
debt-to equity ratio is 8:1 as of March 31, 2017 and 9:1 as of
March 31, 2016. Financial Performance Ratios
The following basic ratios measure the financial performance of
Deposit for Future Subscription the Company:
On February 21, 2017, TFSC and GT Capital infused additional capital
amounting to ₱720.0 million and ₱480.0 million, respectively. Total
2017 2016
capital infusion amounted to ₱1.2 billion recognized as deposit
for future subscriptions under liabilities since it did not meet the Return on average equity 10.71% 11.83%
requirements of the SEC to be recognized as equity. Return on average assets 1.00% 1.18%

As of March 31, 2017, BSP approval on the increase in capital stock Net interest margin on average
is still pending. Consequently, the Company has yet to file the earning assets 5.73% 4.16%
application with the SEC.

POSITIVE RESULTS 57
 24. FINANCIAL RISK MANAGEMENT
OBJECTIVES AND POLICIES
The Company’s principal financial instruments are composed of
cash in banks, due from BSP, loans and receivables, derivative asset,
loans payable, derivative liability, accounts payable and accrued
expenses and subordinated debt. These financial instruments are
used in operations. Financial instruments used in financing are bank
loans, subordinated debt and notes payable. The main risks arising
from the use of financial instruments are credit risk, liquidity risk
and market risk.
Risk Management Framework
The Company serves customers of Toyota vehicles through financing
and leasing services. Enterprise Risk Management (ERM) enables the
Company to achieve corporate objectives while operating within the
boundary of its risk appetite through a well-defined and established
risk management framework.
The BOD oversees the Company's overall risk management strategy
through the various Committees created as follows:
a. Executive Committee
The Executive Committee establishes and oversees execution of
business strategies and has the accountability to identify and
manage the embedded financial and operational risks.
b. Risk Oversight Committee
The Risk Oversight Committee provides independent views
from the business units and ensures effective implementation
of risk management framework through regular reviews of the
Company's performance against approved tolerance for each risk
indicator. The Committee also monitors key and emerging risks
as well as reviews and assesses the impact of business strategies,
opportunities and initiatives on overall risk position.
c. Audit Committee
The Audit Committee through the Internal Audit Department
provides independent assurance of robustness of processes and
methodologies against practice.
d. Toyota Financial Services Corporation Enterprise Risk Functional
Committee (TFSC-ERFC)
The TFSC-ERFC helps ensure that all business risks are periodically
assessed, monitored and evaluated and assessed internal and
external forces that affect the Company’s risk position.
Risk Management Structure
The Company's organizational structure includes the Risk
Management Department (RMD), responsible for developing,
recommending and implementing policies and strategies of ERM.
It is also in charge of periodically monitoring and reporting to
management, regional TFSC Risk Management Group and to the
BOD through the Risk Oversight Committee, the state of company-
wide risk position and effectiveness of the ERM framework. In
addition, the Company adopts the basic risk tenet that risks are
owned by the process owners and have the primary responsibility
for identifying, managing and reporting risks.
Risk Management Strategy
The Executive Committee establishes and oversees execution
of business strategies and has the accountability to identify and
manage the embedded risks. Business strategies and business
plans are thus aligned with the risk appetite approved by the
58 HIGH PERFORMANCE
Risk Oversight Committee and BOD, defined in the form of risk
tolerances for a set of selected key risk indicators. These plans
are executed by management and are reviewed by the President.
Quarterly performances and risks are reviewed together with the
appropriate Board Committees.
Risk Monitoring and Reporting
All material events that may negatively impact the Company’s
earnings, corporate value and reputation are identified and assessed
for frequency, severity and causation. Both top down and bottom
up risk assessment methodologies are done through the deployed
processes and practical standards.
RMD oversees a formal process to monitor and report enterprise-
wide risk exposures. These are discussed with business units and
management. On a quarterly basis, RMD and BOD Risk Oversight
Committee review risk reports for significant trends. Based on
discussions with business units and senior management, RMD
submits requests for approval for any policy exceptions or remedial
action plans to the Risk Oversight Committee and the BOD.
Risk Control and Mitigation
As part of its market risk mitigation activities, the Company uses
derivatives to manage exposures resulting from changes in foreign
currencies and appropriate hedging activities to manage its
interest rate exposures. Credit risks are reduced through the use
of chattel mortgages and insurance protection. Concentration risks
are managed by setting exposure limits. Concentration reports
are provided to management on a monthly basis and to various
related committees on a quarterly basis. Limits approved by the
Risk Oversight Committee and the BOD, undergo at least an annual
review or as needed.
Operational risks are controlled and mitigated through the set-up
of an appropriate organizational structure, supported by human
resource allocation, staff training and education, combination of
robust policies, procedures and standards, information technology
and periodic performance measurement.
The Company’s risk management policies are summarized below:
Credit Risk
Credit risk is the possibility that the Company suffers losses
when a counterparty to a credit transaction fails to meet its
financial obligation.
The Credit Committee establishes and oversees the execution of
the Company’s credit risk management program. The Committee
sets out objectives related to overall quality and diversification of
portfolio.
Credit analysts conduct credit risk review on the prospective
borrower based on verified information. Team heads evaluate the
prospective borrower based on the recommendation of the credit
analysts.
Loan amounts that exceed the approval limit of the Credit
department head are brought up to the Credit Committee. Loan
amounts that exceed the limit of Credit Committee are elevated
to the Executive Committee and recommended to the BOD for
approval.
The Credit Review Unit under the Risk Management Department
provides an objective appraisal of the credit approved loans and
applications for potential or identified loan problems, also to ensure
that company policies and regulatory requirements are followed.
The Company will, from time to time and in the ordinary course of
business, enter into loans with DOSRI. All DOSRI loans are subject
to approval of the BOD. All such loans are on commercial arm’s
length basis. BSP Circular No. 560 states that “the total outstanding
loans, other credit accommodations and guarantees to each of the
company’s subsidiaries and affiliates shall not exceed 10.0% of the
net worth”. As of March 31, 2017 and 2016, the Company has no
loans with DOSRI.
The credit policy manual defines the evaluation process in order
to provide an objective assessment of credit worthiness of
counterparties. The credit policy manual undergoes a minimum of
annual review.
The credit rating system, as defined in the credit policy, uses a
combination of quantitative and qualitative factors to assess the
general financial position of the borrower. Investment grade pertains
to cash in banks, deposited or invested in BSP and other banks based
on a mark-to-market value exposure to each counterparty. For
receivables financed and finance lease receivables, investment grade
pertains to receivables with no history of default in payment; non-
investment grade pertains to receivables with history of defaults in
payment.
The Company has neither credit rating system nor grading for other
types of receivables.

Maximum exposure to credit risk

The gross maximum exposure, net of allowance for credit and impairment losses, to the credit risk of the Company and the related fair value of
collateral and other credit enhancements and its financial effect are shown below:

2017
Financial
Effect of
Gross Maximum Collateral
Maximum Fair Value Exposure or Credit
Exposure of Collateral to Credit Risk Enhancement
Receivables from customers
Receivables financed ₱8,009,422,071 ₱11,320,338,048 ₱379,097,141 ₱7,630,324,930
Finance lease receivables 40,052,020,619 41,912,363,192 2,869,066,916 37,182,953,704
₱48,061,442,690 ₱53,232,701,240 ₱3,248,164,057 ₱44,813,278,634

2016
Financial
Effect of
Gross Maximum Collateral
Maximum Fair Value Exposure or Credit
Exposure of Collateral to Credit Risk Enhancement
Receivables from customers
Receivables financed ₱5,974,639,617 ₱9,162,896,724 ₱782,961,202 ₱5,191,677,387
Finance lease receivables 30,516,097,917 30,743,168,879 6,256,051,158 24,260,047,786
₱36,490,737,534 ₱39,906,065,603 ₱7,039,012,360 ₱29,451,725,173

The carrying values of the other financial assets represent the maximum exposure to credit risk as of March 31, 2017 and 2016.

Concentration of risks of financial assets with credit risk exposure

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or
have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic,
political or other conditions. Concentrations indicate the relative sensitivity of the Company’s performance to developments affecting a particular
industry or geographic location. In order to avoid excessive concentrations of risk, the Company’s policies and procedures include specific
guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly.

POSITIVE RESULTS 59
 Concentration by industry
An analysis of concentrations of credit risk at the reporting date based on carrying amount is shown below:

2017
Loans and Loans and
Receivables Advances to Banks* AFS Investments** Total
Concentration by Industry
Community, social and personal activities ₱16,020,553,532 ₱– ₱1,200,000 ₱16,021,753,532
Financial intermediaries 2,461,111,854 9,596,676,566 - 12,057,788,420
Wholesale and retail trade 8,166,807,738 – - 8,166,807,738
Real estate, renting and business activities 6,669,098,822 – – 6,669,098,822
Transportation, storage and communication 5,442,309,243 – – 5,442,309,243
Education 3,368,217,464 – – 3,368,217,464
Manufacturing (various industries) 2,108,502,308 – – 2,108,502,308
Hotels and restaurants 1,753,944,269 – – 1,753,944,269
Agricultural, hunting and forestry 1,349,735,559 – – 1,349,735,559
Construction 1,283,063,181 – – 1,283,063,181
Electricity, gas and water 663,709,176 – – 663,709,176
Mining and quarrying 104,398,523 – – 104,398,523
Others 12,847,202 – – 12,847,202
49,404,298,871 9,596,676,566 1,200,000 59,002,175,437
Less allowance for credit and impairment losses 1,128,593,300 – – 1,128,593,300
₱48,275,705,571 ₱9,596,676,566 ₱1,200,000 ₱57,873,582,137
* Comprised of Cash in banks, Cash equivalents, and Due from BSP
** Comprised of golf shares

2016
Loans and Loans and
Receivables Advances to Banks* AFS Investments** Total
Concentration by Industry
Financial intermediaries ₱2,193,793,815 ₱8,115,583,000 ₱– ₱10,309,376,815
Community, social and personal activities 9,174,946,664 – 1,500,000 9,176,446,664
Real estate, renting and business activities 7,606,829,479 – - 7,606,829,479
Wholesale and retail trade 6,297,462,357 – – 6,297,462,357
Transportation, storage and communication 4,360,596,864 – – 4,360,596,864
Education 2,272,181,864 – – 2,272,181,864
Manufacturing (various industries) 1,867,900,962 – – 1,867,900,962
Hotels and restaurants 1,219,055,220 – – 1,219,055,220
Construction 1,054,444,295 – – 1,054,444,295
Agricultural, hunting and forestry 853,571,876 – – 853,571,876
Electricity, gas and water 489,274,359 – – 489,274,359
Mining and quarrying 113,628,257 – – 113,628,257
Fishing 42,193,520 – – 42,193,520
Others 21,729,762 – – 21,729,762
37,567,609,294 8,115,583,000 1,500,000 45,684,692,294
Less allowance for credit and impairment losses 861,595,679 – – 861,595,679
₱36,706,013,615 ₱8,115,583,000 ₱1,500,000 ₱44,823,096,615
* Comprised of Cash in banks, Cash equivalents, and Due from BSP
** Comprised of golf shares

60 HIGH PERFORMANCE
Concentration by geographical location

2017
Loans and Loans and
Receivables Advances to Banks* AFS Investments** Total

Concentration by Location

Metro Manila ₱20,178,074,423 ₱9,596,676,566 ₱1,200,000 ₱29,775,950,989

Luzon (except Metro Manila) 30,583,361,645 – - 30,583,361,645

Visayas 3,761,590,993 – – 3,761,590,993

Mindanao 3,674,390,438 – – 3,674,390,438

58,197,417,499 9,596,676,566 1,200,000 67,795,294,065

Less: Allowance for credit and impairment
losses 1,128,593,300 – – 1,128,593,300

Unearned interest income 8,793,118,628 – – 8,793,118,628

₱48,275,705,571 ₱9,596,676,566 ₱1,200,000 ₱57,873,582,137

* Comprised of Cash in banks, Cash equivalents and Due from BSP
** Comprised of golf shares
2016
Loans and Loans and
Receivables Advances to Banks* AFS Investments** Total

Concentration by Location

Metro Manila ₱16,242,459,967 ₱8,115,583,000 ₱1,500,000 ₱24,359,542,967

Luzon (except Metro Manila) 22,973,760,531 – - 22,973,760,531

Visayas 2,656,955,508 – – 2,656,955,508

Mindanao 1,859,636,273 – – 1,859,636,273

43,732,812,279 8,115,583,000 1,500,000 51,849,895,279

Less: Allowance for credit and impairment
losses 861,595,679 – – 861,595,679

Unearned interest income 6,165,202,985 – – 6,165,202,985

₱36,706,013,615 ₱8,115,583,000 ₱1,500,000 ₱44,823,096,615

* Comprised of Cash in banks, Cash equivalents and Due from BSP
** Comprised of golf shares

Credit quality per class of financial assets

The following tables provide information regarding the credit risk exposure of the Company by classifying financial assets according to the
Company’s credit ratings of the counterparties.
2017
Neither past due nor impaired Past Due but
Investment Non-investment Not Specifically
Grade Grade Impaired Total
Cash and cash equivalents* ₱564,922,654 ₱– ₱– ₱564,922,654
Due from BSP 9,031,753,912 – – 9,031,753,912
AFS investments 1,200,000 – – 1,200,000
Receivables financed – net 6,574,990,796 1,331,817,632 284,566,101 8,191,374,529
Finance lease receivables – net 29,842,239,564 9,212,268,109 1,944,153,788 40,998,661,461
Other receivables
Receivables from clients – 203,893,046 – 203,893,046

(Forward)

POSITIVE RESULTS 61
 2017
Neither past due nor impaired Past Due but
Investment Non-investment Not Specifically
Grade Grade Impaired Total
Receivables from employees – 9,411,348 – 9,411,348
Accrued interest receivable – 193,756 – 193,756
Others – 764,731 – 764,731
46,015,106,926 10,758,348,622 2,228,719,889 59,002,175,437
Less: Allowance for credit and
impairment losses 151,246,537 35,654,699 941,692,064 1,128,593,300
₱45,863,860,389 ₱10,722,693,923 ₱1,287,027,825 ₱57,873,582,137
* Excludes Cash on hand
2016
Neither past due nor impaired Past Due but
Investment Non-investment Not Specifically
Grade Grade Impaired Total
Cash and cash equivalents* ₱1,131,984,084 ₱– ₱– ₱1,131,984,084
Due from BSP 6,983,598,916 – – 6,983,598,916
AFS investments 1,500,000 – – 1,500,000
Receivables financed – net 4,341,423,437 1,523,824,795 247,699,665 6,112,947,897
Finance lease receivables – net 19,788,790,555 9,602,756,518 1,847,838,242 31,239,385,315
Other receivables
Receivables from clients – 205,399,843 – 205,399,843
Receivables from employees – 8,934,669 – 8,934,669
Accrued interest receivable – 206,912 – 206,912
Others – 734,658 – 734,658
32,247,296,992 11,341,857,395 2,095,537,907 45,684,692,294
Less: Allowance for credit and
impairment losses 48,514,651 77,070,044 736,010,984 861,595,679
₱32,198,782,341 ₱11,264,787,351 ₱1,359,526,923 ₱44,823,096,615
* Excludes Cash on hand

The credit quality of the financial assets was determined as follows:

• Cash and cash equivalents, Due from BSP and AFS investments - Investment grade pertains to cash in banks, cash equivalents placed, deposited
or invested in local banks and investments in golf shares from issuer with a credit rating of AAA, AA and A.

• Receivables financed and finance lease receivables - Investment grade pertains to receivables with no history of default in payment; Non-
investment grade pertains to receivables with history of defaults in payment. Allowance for credit and impairment losses is classified into
investment and non-investment grade based on net flow rate methodology.

• The Company has neither credit rating system nor grading for other types of receivables.

Aging of past due but not specifically impaired loans and receivables
The table below shows the aging analysis of loans and receivables per class that the Company held. Under PAS 39, a financial asset is past due
when a counterparty has failed to make payments when contractually due.

62 HIGH PERFORMANCE
 2017
Past due but not specifically impaired
31 - 60 days 61 - 90 days 91 - 120 days Over 120 days Total
Receivables financed – net ₱76,162,729 ₱45,439,839 ₱37,640,797 ₱125,322,736 ₱284,566,101
Finance lease receivables - net 556,300,556 362,236,724 249,418,851 776,197,657 1,944,153,788
₱632,463,285 ₱407,676,563 ₱287,059,648 ₱901,520,393 ₱2,228,719,889

2016
Past due but not specifically impaired
31 - 60 days 61 - 90 days 91 - 120 days Over 120 days Total
Receivables financed – net ₱71,142,034 ₱29,458,437 ₱24,325,970 ₱122,773,224 ₱247,699,665
Finance lease receivables - net 605,137,489 236,410,066 200,377,140 805,913,547 1,847,838,242
₱676,279,523 ₱265,868,503 ₱224,703,110 ₱928,686,771 ₱2,095,537,907

Collateral and other credit enhancements

The Company holds collateral against loans and receivables in the form of chattel mortgages. Estimates of fair value are based on the value of
collateral assessed at the time of borrowing and generally are not updated except when a loan is assessed to be impaired. The following table
shows the fair value of collateral held against loans and receivables:

2017 2016
Against neither past due nor impaired ₱47,909,814,606 ₱37,923,966,508
Against past due but not specifically impaired 5,322,886,634 1,982,099,095
₱53,232,701,240 ₱39,906,065,603

It is the Company’s policy to dispose assets acquired in an orderly fashion. The proceeds of the sale of the foreclosed assets classified as assets
held for sale are used to reduce or repay the outstanding claim.

Liquidity Risk
Liquidity risk is the risk of encountering difficulty in raising funds to meet commitments associated with financial instruments.

Liquidity of the Company’s operations are managed with highest degree of accuracy, supported by sufficient, locally available, committed
and uncommitted sources of funds for shorter periods and a sound and conservative funding plan with an appropriate internal authorization
for longer periods. The funding structure is diversified as to financial instruments adopted, geographical markets approached and funding
maturities in order to maintain stable access to low cost funds.

The Asset Liability Committee (ALCO) oversees the management of liquidity risks. The Company’s Treasury Department has the primary
responsibility for managing the Company’s sources of funding, and is tasked with ensuring that the Company has adequate liquidity at all times.
As part of this function, the Treasury Department prepares an annual funding plan that places the highest priority on liquidity and diversity
of funding structure. The Department also prepares an annual contingency funding plan based on stress scenarios which include inability to
access the debt market for an extended period. As such, monthly computation of Days until Alternative Funding key risk indicator and setting
of appropriate limits provides management the means to adopt measures that will strengthen its liquidity position.

The Company’s principal source of funding are borrowings from international and domestic banks amounting to ₱37.6 billion and ₱32.6 billion
as of March 31, 2017 and 2016, respectively, with maturity periods ranging from 8 months to 5 years in 2017 and from 1 month to 4 years in
2016. The Company also issues bonds totaling to ₱6.7 billion and ₱1.5 billion as of March 31, 2017 and 2016, respectively with maturity period
of 4 years as of March 31, 2017 and 2016.

The Company maintains what it believes to be a sufficient cash level. In addition, the Company manages its liquidity by managing the maturity
profile of its outstanding loans.

Analysis of financial assets and liabilities by remaining contractual maturities

The following tables set forth the financial assets and liabilities based on undiscounted future cash flows of the Company as of March 31, 2017
and 2016 into their relevant maturity groups based on the remaining period at reporting dates to their contractual maturities.

POSITIVE RESULTS 63
 2017
More than More than More than
1 month up to 3 months up 6 months up
On demand Up to 1 month 3 months to 6 months to 12 months Beyond 1 year Total
Financial Assets
Cash and cash equivalents ₱566,214,150 ₱− ₱− ₱− ₱− ₱− ₱566,214,150
Due from BSP 9,031,753,912 − − − − − 9,031,753,912
AFS investments – – – – – 1,200,000 1,200,000
Receivables from customers
Receivables financed - net 58,569,396 322,378,951 615,962,452 884,676,450 1,620,822,381 6,089,472,903 9,591,882,533
Finance lease receivable - net 264,955,238 1,314,434,200 2,472,971,569 3,649,299,858 6,999,181,121 31,610,058,658 46,310,900,644
Other receivables
Receivables from clients 203,893,046 − − − − − 203,893,046
Receivables from
employees 465,995 259,299 452,503 678,755 1,331,885 6,222,912 9,411,349
Accrued interest
receivable − 193,756 − − − − 193,756
Other Receivables 764,731 − − − − − 764,731
Derivative Assets
− − 34,064,958 9,256,808 49,264,145 5,319,605,271 5,412,191,182
Receive leg
Pay leg − − (72,621,843) (21,138,112) (93,636,216) (5,203,712,006) (5,391,108,177)
₱10,126,616,468 ₱1,637,266,206 ₱3,050,829,639 ₱4,522,773,759 ₱8,576,963,316 ₱37,822,847,738 ₱65,737,297,126
Financial Liabilities
Loans payable
Bank loans ₱− ₱1,471,005,577 ₱3,738,214,138 ₱3,631,594,682 ₱6,365,826,387 ₱22,145,930,333 ₱37,352,571,117
BTMU Loan USD – – 31,360,750 31,360,750 62,721,500 4,084,256,138 4,209,699,138
Mizuho Term Loan – – 51,483,731 – 52,049,279 2,765,672,956 2,869,205,966
Fixed Rate Notes – – 14,362,839 13,904,450 27,808,901 1,519,485,813 1,575,562,003
Corporate note – – – 40,756,675 41,432,200 1,582,414,050 1,664,602,925
Notes payable – 1,528,950,057 1,275,612,280 973,320,050 959,405,284 345,170,350 5,082,458,021
Accounts payable and other
liabilities
Accounts payable 49,234,805 603,349,841 40,475,369 - - − 693,060,015
Accrued interest payable and
other expenses – 100,798,110 111,934,593 50,670,123 12,903,738 326,009 276,632,573
Subordinated debt – – – – - - -
Deposit on lease contracts 42,751,565 49,207,478 101,023,955 167,824,225 489,850,169 1,229,714,049 2,080,371,441
Derivative Liability
Receive leg – – 4,113,646 4,672,153 10,082,267 1,337,442,904 1,356,310,970
Pay leg – – (10,924,106) (10,924,106) (21,491,990) (1,387,389,344) (1,430,729,546)
₱91,986,370 ₱3,753,311,063 ₱5,357,657,195 ₱4,903,179,002 ₱8,000,587,735 ₱33,623,023,258 ₱55,729,744,623

64 HIGH PERFORMANCE
 2016
More than More than More than
1 month up to 3 3 months up to 6 months up
On demand Up to 1 month months 6 months to 12 months Beyond 1 year Total
Financial Assets
Cash and cash equivalents ₱1,132,903,202 ₱− ₱− ₱− ₱− ₱− ₱1,132,903,202
Due from BSP 6,983,598,916 − − − − − 6,983,598,916
AFS investments − − − − − 1,500,000 1,500,000
Receivables from customers
Receivables financed - net 28,180,213 317,792,814 520,658,245 736,105,191 1,295,968,788 4,170,468,504 7,069,173,755
Finance lease receivable
121,848,502 1,140,241,010 1,850,899,404 2,722,438,315 5,169,186,540 22,242,358,209 33,246,971,980
- net
Other receivables
Receivables from
205,399,843 − − − − − 205,399,843
clients
Receivables from
employees 625,056 363,666 566,214 1,132,428 2,264,856 3,982,449 8,934,669
Accrued interest
receivable − 206,912 − − − − 206,912
Other Receivables 734,658 − − − − − 734,658
₱8,473,290,390 ₱1,458,604,402 ₱2,372,123,863 ₱3,459,675,934 ₱6,467,420,184 ₱26,418,309,162 ₱48,649,423,935
Financial Liabilities
Loans payable
Bank loans ₱1,283,333 ₱2,498,059,637 ₱2,716,911,233 ₱2,690,190,399 ₱5,019,310,311 ₱20,389,551,836 ₱33,315,306,749
Mizuho Term Loan – – 7,419,623 – 8,503,886 1,247,045,723 1,262,969,232
Corporate note – – – 41,040,396 41,373,655 1,664,602,925 1,747,016,976
Notes payable 63,682,618 183,557,613 569,476,901 266,432,012 96,651,750 481,745,962 1,661,546,856
Accounts payable and other
liabilities
Accounts payable 69,804,281 394,149,176 20,756,755 − − − 484,710,212
Accrued interest payable
and other expenses – 106,665,424 79,863,758 41,922,376 6,127,207 635,889 235,214,654
Subordinated debt – 1,033,625,000 − − − − 1,033,625,000
Deposit on lease contracts 49,870,496 76,534,582 112,970,922 216,508,672 474,698,621 2,270,807,169 3,201,390,462
Derivative Liability
Receive leg – – 8,804,424 – 8,895,003 1,216,857,926 1,234,557,353
Pay leg – – (26,114,863) – (26,114,863) (1,337,261,063) (1,389,490,789)
₱184,640,728 ₱4,292,591,432 ₱3,490,088,753 ₱3,256,093,855 ₱5,629,445,570 ₱25,933,986,367 ₱42,786,846,705

Market Risk
Market risk is exposure to changes in market rates that may adversely
affect the Company value and ability to meet obligations as they
mature. Market risks cover interest rate and foreign exchange risks.
Interest rate risk
Interest rate risk arises from interest margin compression due to
an adverse movement in the market interest rates. This risk applies
only to accrual positions as the Company has no trading portfolio.
The ALCO establishes and oversees the Company’s interest rate risk
as part of the market risk management program. In considering
interest rate exposures, the Company measures its risk profile
in terms of asset and debt/derivative notional size, asset yields
and market rates, maturity profile, pre-payment and re-pricing
characteristics. Interest rate risks exposures are evaluated using a
variety of techniques and measures, each of which are based on
projecting asset and liability cash flows under interest rate and
market price scenarios.
Interest rate risk exposures are reported via portfolio hedge ratio.
This tool highlights the level of gap in amounts in fixed rates of
interest between assets and liabilities, as a measure of exposure to
interest rate changes, the critical components of which are notional
size, maturities and re-pricing profiles.

POSITIVE RESULTS 65
 The Company also measures the potential impact of bps yield curve
26. EVENTS AFTER THE REPORTING PERIOD
parallel shift on the expected earnings. This tool gives a measure of
expected earnings at risk as a result of interest rate risk exposure.
On May 15, 2017, the BSP approved the increase in capital stock.
The approval letter was received by the Company on May 30, 2017.
The table below demonstrates sensitivity analysis to a reasonably
possible change in interest rate based on one year historical rates,
with all other variables held constant, of the Company’s income
27. SUPPLEMENTARY INFORMATION REQUIRED UNDER
before income tax (through the impact on floating rate interest).
REVENUE REGULATIONS 15-2010

2017 2016 The Company reported and/or paid the following types of taxes for
the year ended March 31, 2017:
Increase in Decrease in Increase in Decrease in
Basis Points Basis Points Basis Points Basis Points Gross Receipts Taxes (GRT)
Change in basis The Company is subject to GRT on its gross income from Philippine
points N/A N/A 200 200 sources. GRT is imposed on interest, commissions and discounts
Effect in income from lending activities at 5.0% or 1.0%, depending on the remaining
before tax – – ₱1,508,333 (₱1,508,333) maturities of instruments from which such receipts are derived, and
at 7.0% on non-lending fees and commissions, trading and foreign
Foreign currency risk exchange gains and other items constituting gross income.
Foreign currency risk is the risk that the value of a financial
instrument will fluctuate as a result of changes in the value of Details of the Company’s income and GRT accounts in 2017 are as
foreign currencies which include volatility in exchange rates, follows:
correlations across currencies and changes in currency regime.
Gross
As a general rule, the Company is not allowed to have a forex Gross Receipts Receipts Tax
position. All foreign borrowings must be fully hedged from Income derived from
inception until maturity. The Company’s foreign exchange risk lending activities ₱3,889,744,463 ₱194,487,223
results primarily from movements of the PHP against the USD with
respect to USD-denominated financial assets (such as cash and Other income 264,755,911 18,087,740
cash equivalents) and USD-denominated financial liabilities (such ₱4 ,154,500,374 ₱212,574,963
as accounts payable and other liabilities).
Other Taxes and Licenses
The following table shows the details of the Company’s foreign
currency-denominated monetary assets and liabilities in USD: For the year ended March 31, 2017, other taxes and licenses included
in ‘Taxes and licenses’ account of the Company consist of:
2017 2016
Cash in bank $7,069 $5,917 Documentary stamps taxes ₱41,182,175

Accounts payable and other liabilities 4,325 3,490 Local taxes 6,708,976
Others 2,928,633
The following table demonstrates the sensitivity to a reasonably
₱50,819,784
possible change in the USD exchange rate, with all other variables
held constant, on the Company’s income before tax:
Others include fringe benefits tax, LTO registration and SEC
registration fee.
Foreign currency appreciates
(depreciates) 2017 2016 Withholding Taxes
5.0% ₱6,882 ₱5, 591
(5.0%) (6,882) (5,591) Total
Remittances Balance
Expanded withholding taxes ₱41,752,350 ₱6,714,145
25. NOTE TO STATEMENT OF CASH FLOWS
Final withholding taxes 34,370,303 6,487,474
Noncash investing activities pertain to transfer of repossessed Withholding taxes on compensation
vehicles classified as assets held for sale to property and and benefits 23,383,385 7,911,969
equipment amounting to ₱18.4 million and ₱3.6 million in 2017 ₱99,506,038 ₱21,113,588
and 2016, respectively. It also includes foreclosure of repossessed
vehicles classified as assets held for sale amounting to ₱1.2 billion
and ₱0.8 billion in 2017 and 2016, respectively.

66 HIGH PERFORMANCE
DEALERSHIP
DIRECTORY
METRO MANILA DEALERS
Toyota Abad Santos, Manila
Toyota Alabang, Inc.
Toyota Balintawak, Inc.
Toyota Bicutan, Parañaque
Toyota Commonwealth, Inc.
Toyota Cubao, Inc.
Toyota Fairview, Inc.
Toyota Global City, Inc.
Toyota Makati, Inc.
Toyota Manila Bay Corporation
Toyota Marikina
Toyota North-Edsa
Toyota Otis, Inc.
Toyota Pasig
Toyota Pasong Tamo, Inc.
Toyota Quezon Ave., Inc.
Toyota Shaw, Inc.
LUZON DEALERS
Toyota Angeles, Pampanga
Toyota Bacoor Cavite Inc.
Toyota Baguio City
Toyota Bataan, Inc.
Toyota Batangas City, Inc.
Toyota Cabanatuan City, Inc.
Toyota Calamba, Laguna, Inc.
Toyota Camarines Sur, Inc.
Toyota Dagupan City, Inc.
Toyota Dasmariñas-Cavite
Toyota Ilocos Norte
Toyota Isabela, Inc.
Toyota La Union
Toyota Lipa, Batangas, Inc.
Toyota Marilao, Bulacan, Inc.
Toyota Plaridel, Bulacan
Toyota Puerto Princesa City, Inc.
Toyota San Fernando, Pampanga, Inc.
Toyota San Pablo, Laguna, Inc.
Toyota Santa Rosa, Laguna
Toyota Tarlac City, Inc.
Toyota Taytay, Rizal, Inc.
ADDRESS CONTACT NUMBERS
2210 Jose Abad Santos Ave., Manila (02) 230-1111
Alabang-Zapote Road cor. Filinvest Ave. Filinvest City, Alabang, Muntinlupa City (02) 370-2888
EDSA cor. V. Ang & Gen. Evangelista Sts., Caloocan City (02) 366-8901 to 06
Km. 15 West Service Road, South Superhighway, Parañaque City (02) 777-9500
Commonwealth Ave., Quezon City (02) 952-1021 to 27
926 Aurora Blvd., Cubao, Quezon City (02) 981-6168
Blk 6 Lot 2,3,4 and 5 Neopolitan Business Park, Belfast Cor. Mindanao Avenue, Quezon City (02) 277-0911 to 18 / (02) 2770921 to 24
38th St. cor. 11th Ave, Uptown Fort Bonifacio Global City, Taguig (02) 846-7777
Ayala Ave. Extension, cor. Metropolitan Ave., Makati City (02) 897-3333
Roxas Blvd. cor. EDSA Ext., Pasay City (02) 581-6168
Sumulong Hwy. cor. Toyota Ave., Brgy. Sto. Niño, Marikina City (02) 981-6000
1010 EDSA Quezon City (02) 927-7215 / 17 / 30 / 39
1770 Paz M. Guazon St., Paco, Manila (02) 564-1811 to 20
124 E. Rodriguez Ave., Brgy. Ugong, Pasig City (02) 238-6777
2292 Pasong Tamo Ext., Makati City (02) 893-8084
728 Quezon Ave., Quezon City (02) 554-2000
304 Shaw Blvd., Mandaluyong City (02) 532-7429
Angeles-Magalang Road, Pulung Maragul, Angeles City Pampanga (038) 409-1000
Bacoor Boulevard, Barangay Mambog IV, Bacoor City (046) 489-8000
Bokawkan Rd. cor. Aguila St., Baguio City, Benguet (074) 443-6778 / (074) 300-3273 to 74
Roman Superhighway, Brgy. Tuyo, City of Balanga, 2100 Bataan (047) 612-1663 / (047) 612-1671
Diversion Rd., Brgy. Balagtas, Batangas City, Batangas (043) 300-4088
Km. 118 Maharlika Hwy., Daang Sarile, Cabanatuan City, Nueva Ecija (044) 463-8481 to 87
National One Hwy., Brgy. Turbina, Calamba City, Laguna (049) 508-3443
624-B National Rd., Pili, Camarines Sur (054) 477-2526
Diversion Rd., Bgy. San Miguel, Calasiao, Pangasinan (075) 517-2026 to 28
Aguinaldo Hwy., Bo. Salitran, Dasmariñas City, Cavite (02) 581-6000 / (046) 481-0000
Barangay 16 San Marcos, San Nicolas, Ilocos Norte (077) 600-8891
Km. 321 Maharlika Hwy., Brgy. Malapat, Cordon, Isabela (78) 305-3106
Manila North Rd., Bauang, La Union (072) 705-8007 to 08 / (072) 607-3501 to 02
Lot 1-A-2 Magnificent Complex President J.P Laurel Highway Brgy. Banay Banay Lipa City, Batangas (043) 757-0211
MacArthur Hwy., Abangang Sur, Marilao, Bulacan (044) 815-8778
9001 Purok 1, Parulan, Plaridel, Bulacan (044) 794-1888
National Hwy., Brgy. Tagburos, Puerto Princesa City, Palawan (048) 717-8200 to 8299
Olongapo-Gapan Rd. San Fernando City, Pampanga (045) 961-1188
Maharlika Hwy. Brgy. San Benito Alaminos, Laguna (02) 519-4357 / (049) 543-5031 to 34
Lot 1968-D Santa Rosa-Tagaytay Road, Baranagay Pulong Sta. Cruz, Santa Rosa City (02) 536-0344
Plaza Luisita Center, Brgy. San Miguel, Tarlac City, Tarlac (045) 491-0888
15 A Manila East Rd., Brgy. Dolores, Taytay, Rizal (02) 653-7222 / (02) 995-3096
POSITIVE RESULTS 67
 DEALERSHIP
DIRECTORY
VISAYAS DEALERS
Toyota Aklan
Toyota Bacolod City
Toyota Calbayog, Samar
Toyota Cebu City, Inc.
Toyota Mandaue North, Cebu
Toyota Mandaue South, Cebu
Toyota Dumaguete City
Toyota Iloilo, Inc.
Toyota Tacloban, Leyte, Inc.
Toyota Talisay, Cebu
Toyota Tagbilaran
Toyota Roxas City
MINDANAO DEALERS
Toyota Butuan City
Toyota Cagayan De Oro City, Inc.
Toyota Davao City, Inc.
Toyota General Santos, Inc.
Toyota Matina, Davao
Toyota Tagum City
Toyota Zamboanga City
68 HIGH PERFORMANCE
Lagimbanua East Numancia, Kalibo Aklan (036) 265-3597 to 99
Araneta St., Gardenville Subdivision, Bacolod City, Negros Occidental (034) 444-1811 to 12
Maharlika Hwy., Barangay Bagacay, Calbayog City, Samar (055) 209-4047 to 48
32 M.J. Cuenco St., Cebu City, Cebu (032) 253-1161 to 68
Rizal St., Tabok, Mandaue City, Cebu (032) 345-8670
Ouano Ave., North Reclamation Area, Mandaue City, Cebu (032) 420-9555
4741 Brgy. Tubtubon, Sibulan, Negros Oriental 6201 (035) 419-9490 / (035) 522-0859
Gran Plains Subdivision, Jaro, Iloilo City, Iloilo (033) 320-6115 to 19
Maharlika Hwy., Naga-naga, Tacloban City, Leyte (053) 325-2222
SRP Road Lawaan 1, Talisay City, Cebu (032) 260-9201
CPG North Avenue, Taloto District, Tagbilaran City, Bohol (038) 411-1341
Iloilo-Capiz Road, Brgy. Bolo, Roxas City, Capiz (036) 620-2408
National Hwy., Libertad, Butuan City 8600 (085) 815-0348 / (085) 341-8980
Km. 3 National Hwy., Kauswagan, Cagayan De Oro City, Misamis Oriental (088) 858-9994 / (088) 858-7770
Km. 6 Lanang, Davao City, Davao Del Sur (082) 234-2994
National Hwy., City Heights, General Santos City, South Cotabato (083) 554-2994
Mc. Arthur Hwy, Barangay Matina Crossing, Talomo District, Davao City (082) 226-2994
Davao-Agusan National Hwy., Barangay Canocotan, Tagum City, Davao Del Norte (084) 655-2994
MCLL Highway, Brgy. Boalan, Zamboanga City, Zamboanga del Sur (062) 926-7225 / (062) 926-7226
32nd Floor GT Tower Int’l. Ayala Avenue cor. HV dela Costa Street, Salcedo Village, Makati City 1226
Investor Assistance Hotline: (02) 756-7430
www.toyotafinancial.ph