Executive

Summary
Figure 1: Conglomerate’s Corporate Structure

Source: GT Capital Company Structure (website)

GT Capital Holdings adopts a functional corporate structure, of which allows greater operational efficiency because
employees with shared skills and knowledge are grouped together by function. However, this may bring potential
decreasing flexibility and innovation. With regards to the conglomerate’s subsidiaries, it adopts a divisional/multidivisional
structure since each subsidiary operates with their own presidents.

Figure 2: Subsidiaries
Globalization means that competitors, as
well as employees and markets, may be
spread all over the world. Companies that
respond too slowly will find their markets
taken away by nimbler competitors. Thus,
flexibility and quick – almost immediate –
response times in order to stay ahead of the
competition are essential in today’s global Banking Real Estate Automotive Infrastructure Insurance
marketplace, especially with product life
cycles that keep getting shorter and shorter.

An increasing number of organizations are

harnessing IT to widen their spans of control
15.6%
and thereby transform themselves into 36.1% 51%
nimbler, more efficient, and flatter entities.
Electronic communication technologies,
then, have enabled organizations to redesign 25.3%
themselves from tall organizational 100% 58.1%
51%
hierarchies with long chains of command and
narrow spans of control to flatter structures 100%
with shorter chains of command and wider
spans of control.

Source: GT Capital Corporate Profile (company website), 2017 Annual Report

Current PH economic environment
Figure 3: Current Philippine Economic Environment

105.8M
Total Population
(5.1 % growth as of 2018Q1)

5.7%
6.8% Inflation rate
Real GDP growth rate (July 2018)
(2018Q1)

The economy can be analyzed in two perspectives:

the demand side and the supply side. On the
demand side of the economy, household
consumption continues to be a main driver of
5.3% growth at 67.4% of total GDP as of 2017.
Unemployment rate
(Jan 2018)
3.0
Interest rate
(March 2018) On the supply side, there has been miniminal
changes to the mix of GDP contribution by sector
with service contributing the bulk of total GDP at
58.0% as of 1Q18.

Source: Bangko Sentral ng Pilipinas, Philippine Statistics Authority

Figure 4: Industrial Origin

The services sector remained the primary engine of

growth in Q1, accelerating by 7.0 percent from 6.7 percent
and 6.9 percent in the previous year and quarter, 1Q18 Industrial Origin (as a %of GDP)
respectively, and contributed 4.0 percentage points (ppts)
to total GDP. The higher growth in the sector stemmed
from the following subsectors: financial intermediation
(7.6 percent from 5.2 percent a quarter ago) due to
increase in the number of transactions in bank and non-
8%
Agriculture, hunting,
bank institutions; transport, storage and communication forestry and fishing
(6.4 percent from 4.9 percent); due to higher increase in
Industrial sector
land transport and communication services; public
administration and defense, compulsory social security 34%
(13.2 percent from 8.5 percent) due to upward 58% Service sector
adjustments in the compensation for civilian and military
and uniformed government personnel; and other services
(8.8 percent from 6.3 percent) due to activities in the
social-related subsectors such as education and health and
social work and other economic drivers.

Source: PWC
 Economic

The key STEEP drivers Rate of inflation

Exchange rate
Cost of labor
Political

Tax rates Regulatory reform

Tax treatment
In order to sustain business growth and beat economic
conditions, identifying key drivers is vital for every business, AUTOMOBILE Environmental
especially external drivers, of which the company cannot Technological
Climate change
control. Businesses needs to take into account the impact of Global oil prices
global social, technological, environmental, economic and Smoke emission E-commerce
political factors (STEEP) in each business segment they Tech trend
Devices & sensors
operate in. Software
Social Applications
The model’s factors will vary in importance to a given Market demand
company based on its industry and the goods it produces. Media perception
The external factors mentioned can have both positive Aging population
impact (called opportunities) or negative influence (called
threats) to firms.
REAL ESTATE
The organization’s environment consists of the conditions
and forces that affect its strategic options and define its Political
Social
competitive situation (Pearce and Robinson, 1997).
Organizations, in order to survive, have to pay close Demographic Regulatory form
attention to the external environment. Failure to do so will shifts
affect the future survival of the organization.
Environment
Economic Technological Infrastructure
Urbanization e-commerce
Figure 5: Key External Drivers Interest Rate logistics

Economic BANKING Social

Capital balances Customer behaviors Political

Economic Strength Environment Talent drain INFRASTRUCTURE
Inflation/Deflation INSURANCE Corporate Social Gov’t Instability
Ecosystem Responsibility Regulation
Climate change Corruption Level
Political & sustainability Environment Economic
Technological

State intervention Inflation rate Environment

Climate change Information
Investment strategies Social Availability of credit
Sustainability Devices and sensors
Price fluctuations Policies
SWFs/development Software Applications
Pollution Medical Advances GDP trend Natural disasters
banks Urbanization
Climate Change
Global affluence
Talent and Skills Weather
Political Technological
Social media Economic
Technological
Regulatory form R&D
Social
Tax treatment Urbanization Access to new tech
Cryptocurrency Political Risk Inflation/deflation Level of innovation Growth rate
Digitization Terrorism Fiscal pressure
Wealth distribution
R&D Cultural norms
Product Quality

Degree of impact:
Very High High Moderate Low Very Low
Figure 6: Summary of Figure 5
DEGREE OF IMPACT Innovation is stifled when decision making is
Social Technological Environmental Economic Political
5
5
4
4
3
3
2
2
1
1
AUTOMOBILE REAL ESTATE INFRASTRUCTURE INSURANCE BANKING There are a number of developments that have
Based on the team’s research, status in the different external factors
affect the conglomerate’s businesses in varying degrees. Political
situation in the country affect the Infrastructure industry mostly.
Infrastructure systems are typically characterized by a high degree of
regulation and that even processes of market liberalization are often
accompanied by intensive re-regulation.
Aside from Infrastructure, the automobile industry is also struggling
from the recent implementation of TRAIN Law in the country. A study
showed total vehicle sales continue to decrease for the 2nd quarter of
2018 due mainly to the application of new regulations. During economic
slowdowns, consumers try to save every single penny & buying a new
car becomes almost impossible for the general public, which makes the
economic status of the country the number one factor affecting the
automobile industry. Players in the automobile industry has kept up with
the trends: hybrid cars, eco-friendly cars, improved navigation and
safety features – thus, technological factors affect the automobile
industry in a moderate degree.
Technology is changing how consumers handle their funds. The
emergence of cryptocurrency and block chain is relevant for a new age
of banking. Sooner, robots will be the ones handling all bank-related
transactions in branches, cash remittance will be done online. Reduced
footprint. With the use of technology, particular through mobile banking
apps, the use of paper is minimized, as well as the need to drive to a
branch to handle affairs. It is crucial for the banks to follow suit with
technological trends to be able to sustain growth for this industry is
highly susceptible to technology disruption.
New technologies are radically changing the traditional banking business model. From the way
banks interact with customers to the way banks manage their middle and back of office operations,
technological innovations are challenging traditional processes across the ENTIRE VALUE CHAIN.
Digital disruptions challenging
the traditional role of banks
immediate corporate
The need for a flatter, more
structure is vital for pronto decision-making.
filtered through various different layers.
The realities of the environment in which
organizations operate make flattening the
organizational structure not an option but an
imperative for survival.
Apart from the corporate structure of the
conglomerate, a study of the external drivers
affecting the conglomerates’ subsidiaries is a
dynamic step to identifying technological
impacts.
and will continue to shape business strategies.
From automation to sustainability, organizations
needs to adapt to a whole new wave of
consumer preferences. The banking industry is
no less exempted.
By 2020, consumers will continue to patronize
banking services, but they may not turn to a
bank to get them. Or, at least, maybe not what
we think of as a bank today. The so-called
sharing economy may have started with cars,
taxis, and hotel rooms, but financial services will
follow soon enough.
It is expected that by this time the ‘new normal’
operating model will be customer- and context-
centered. That is, companies will change the
way they interact with their customers based on
the context of the exchange. They will offer a
seamless omnichannel experience, through a
smart balance of human and machines.
Based on the 20181Q Industrial Origin as a
percentage to Philippine’s GDP, the service
sector is the greatest contributor; which includes
the financial and banking industry. Also, GT
Capital’s subsidiary, Metrobank, contributed
highly to the conglomerate’s profit from
operations; giving a profit of 28% in the year
2016 which increased to 34% in 2017.
 Figure 7: Company Value Chain

PRIMARY ACTIVITIES

MARKETING SALES PRODUCT AND SERVICES TRANSACTION

REWARD/LOYALTY CARD E-CHANNELS (ATMs, REAL-TIME CLEARANCE

CAMs, ONLINE & MOBILE INVESTMENT BANKING
0% FEE CREDIT CARD CORPORATE BANKING PAYMENT CLEARANCE
BANKING)
COMMERCIAL BANKING SYSTEM
CONSUMER BANKING
ADVERTISING SALES MANAGEMENT TRUST BANKING ONLINE BANKING
CREDIT CARDS
SALES SUPPORT MARKET EXPANSION LEASING SETTLEMENT SYSTEMS
INSURANCE
REMITTANCES
METRO SHORTTERM FUND
METRO UNIT PAYING FUND

SUPPORT ACTIVITIES
HUMAN RESOURCE MANAGEMENT
•  Leadership and Management Development Program (LMPD)

TECHNOLOGICAL DEVELOPMENT
•  Cash Accept Machines

FIRM INFRASTRUCTURE
•  IT Security

RISK MANAGEMENT
•  Risk Management Group (RSK)
•  Business Risk Manager (BRM)
•  Risk Management Coordinating Council (RMCC)

Metrobank remains dedicated to fulfilling its vision to be the best bank for all stakeholders – from its customers to the
community. With people dedicated to product quality, service excellence, solid work ethics, and good governance,
Metrobank has established a reputation of stability, strength, and leadership. It adheres to international best practices,
careful strategic planning and prudent decision-making, focused on further improving earnings quality and increasing
shareholder value by constantly reinforcing a customer-centric strategy built around the commitment of its people.

A recognized leader in the country’s banking industry, Metrobank has become regarded as the trusted banking partner,
staying true to its brand promise of “You’re in Good Hands.”
 Figure 8: Porter’s Five Forces Model for Metrobank

Threats to New Entrants Power of Customers (High)

(Low)
•  The individual customers
•  Biggest entry barrier – •  High switching costs
regulatory & capital •  The customers loyalty
requirements •  The technology

•  New trend, new threat of

entrants is low due to
stringent norms (BSP Availability of Substitutes
regulations, high initial (High)
investment, entry
barriers) •  Non-financial competitors
•  Investors
•  NBFC
•  Small co-operative banks
•  Borrowing avenues

Power of Suppliers (Moderate)

Competitive Rivalry (High)
•  Customer deposits
•  Mortgages loans •  The banking industry is considered
•  Mortgage securities highly/intensely competitive.
•  Loans from other financial •  Acquisition & mergers – avoids
institutions marketing & advertising

The Porter's five forces analysis of Metrobank reveals that the strongest forces that the company must take into
account are competition from rivals in the industry, the bargaining power of consumers and the threat of substitute
products. Bargaining power of suppliers is a lesser force, and the threat of new entrants to the industry is minimal.

Figure 9: Factors Affecting Porter’s Five Forces Model

1.  Too many

1.  Government 1.  Long-term 1.  Close customer 1.  Rise in
players of same
licensing & BSP Finance relationship investment
size.
regulations 2.  Margins & 2.  Conservative revenues
2.  Players have
2.  Skills volumes customers 2.  Providers of
similar
manpower 3.  Multiple 3.  Risk taking funds
strategies
3.  High Initial options customers 3.  Interest rates
3.  Less product
Investment 4.  Banks attitude 4.  Valuation
differentiation,
4.  Protected competitors 4.  Switching costs 5.  The economic
price
Intellectual 5.  Retail Lending outlook
competition
Property 6.  Rate of
4.  Low market
5.  Entry of 7.  Offshore
growth rates
Foreign Banks operations
5.  Barriers for exit

are high

 The Bargaining Power of Customers
you’re in good hands
Customers' overall bargaining power is an important factor influencing
the industry. Individual customers, especially in the commercial
banking marketplace, have relatively little bargaining power since the
loss of any one account has a minimal impact on Metrobank's bottom
line. However, in the aggregate, the bargaining power of customers is
greater since the bank cannot afford to suffer mass defections of
depositors. Corporate and high net worth individual (HNWI) clients
have relatively greater bargaining power, since the loss of sizable
accounts and sources of revenue can more substantially affect the
bank's profitability.

As customers, particularly young adults, turn to digital services and tools for their financial needs, traditional banks
are increasingly vulnerable. Major banking organizations are well aware of their FinTech competition and have
invested heavily in the companies that are trying to disrupt the finance and banking industries through digital
innovation, simplicity of design and advanced pricing models. Banks are oligopolists that may be dynamically
efficient in terms of innovation and new product and process development.. The profits they generate may be used
to innovate, in which case the consumer may gain.

Metrobank addresses the issue of customer bargaining power primarily by extending attractive offers to potential
new clients. It also continually makes efforts to get existing clients to open additional accounts and sign up for
additional services, which effectively increases the switching cost for customers by making it more troublesome for
them to transfer their finances to another bank. Metrobank continues to redirect all its products and services towards
a customer-centric path. However, in a digital economy where new technologies are constantly reshaping industries
and business models, the ability to innovate quickly should be a strategic imperative of Metrobank.

Figure 10: Bank and FinTech API Collaboration

“Trust” plays an
important role in
building healthy
relationship
between a banker
and customer.
Figure 11: Bank – Supplier Relationship

The Bargaining Power of Suppliers

The main suppliers for Metrobank’s capital would be depositors and the
credit market. The depositors, as suppliers, prefer low risk and need
regular income and safety as well. On the other hand, credit market
supplies the bank with their money needed for transactions. In regard
to depositors, the situation is essentially the same as that delineated
under the bargaining power of customers. Individual depositors, other
than major corporate or HNWI depositors, have relatively little
bargaining power, but taken as a whole, their bargaining power is
considerable. Low supplier power creates a more attractive industry
and increases profit potential thus gives the bank more leverage over
the suppliers.

Metrobank's approach to dealing with this market force is, again, to

work diligently to attract new clients and to increase the extent to which
existing depositors hold funds and access services through Metrobank.

Figure 12: Government Regulations

CIRCULAR NO. 902 Series of 2016

Subject: Phased lifting of the Moratorium on the Grant of New

Banking License or Establishment of New Domestic Banks

Pursuant to Monetary Board Resolution No. 114 dated 2l January

2016 approving the phased lifting of the moratorium on the grant
of new banking license or establishment of new domestic banks,
the following regulations are hereby issued:

Statement of Policy. It is the policy of the Bangko Sentral to

promote a competitive banking environment while preserving its
basic thrust of encouraging mergers and consolidations. With the
evolving policy reforms, integration of financial markets and
greater use of technology in finance, banks need to reposition
themselves to maintain a competitive stance in the industry and
remain responsive to the needs of all stakeholders through the
efficient delivery of financial services and products and expanded
market reach. The moratorium on the establishment of new
domestic banks shall be fully lifted and locational restrictions shall
be fully liberalized starting 1 January 2018.

Regulation of capital, liquidity and related stress-test requirements, as well as enhanced prudential standards, will
continue to evolve and eventually force globally active and/or systematically important banks to meet even higher stringent
and binding standards. These requirements are making a compelling case to seek alignment of risk appetite, capital
planning and adequacy assessment, recovery and resolution planning, liquidity risk management, stress testing and
overall enterprise risk management activities. Moreover, this should ultimately lead to capital and liquidity optimization,
which would become a competitive advantage for banks competing in a highly capital-burdened environment.
 Figure 13: Barriers to Entry

Competition From Industry Rivals

Competition within the industry is the strongest of
Porter's five forces for Metrobank. The banking
industry is an oligopolistic market in which a few

Trust/Security Concerns
firms dominate and considered highly or intensely
competitive and concentrated. Metrobank faces

Capital Requirement
intense competition domestically from the other
major money-center banks in the Philippines and

Economies of Scale
globally from other large multinational banking firms.

Access to Financing
The major banks are continually extending offers to
draw customers away from other banks.

Regulatory Compliance

Licensure Laws
Metrobank deals with industry competition in three
main ways. It attempts to distinguish itself in the
marketplace primarily on the basis of its long,
recognized heritage and experience. It aims to stay
on the cutting edge of offering customer
convenience, zero-free credit card, higher interest
rates on deposits and low-cost and cutting-edge
services. It has a history of acquiring smaller banks,
removing some potential competition from the Barriers to Entry
marketplace.

The Threat of New Entrants to the Industry

The threat of new entrants as a significant force within the

anks
industry is relatively small due to stringent norms. Significant
n t B
mbe Banks
obstacles would face any company attempting to compete
Incu e n ger
Chall directly on the same level with Metrobank or the other
major Philippine money-center banks. The primary obstacles
Fintechs for potential new entrants wishing to offer financial services
on a large scale are the massive amount of capital required,
New Entrants

Insurers the length of time required to establish a significant brand

identity, and the numerous and cumbersome government
Fund managers regulations that apply to the operation of banks.
Reta
ilers Metrobank, over time, have built up a superior level of

knowledge of the market, its customers, and its production
costs. This superior knowledge can deter entrants into the
market. In the near future, however, Metrobank and other
major banks are likely to face increasingly competitive
threats in the industry arising from non-financial banking
institutions bringing new technologies that will eventually
compete and reshape the whole banking ecosystem.
Figure 14: Substitute Products
The Threat of Substitute Products

Experiences with non-banking

industries such as retail and
•  Deposit Accounts •  Crowdfunding
communications have shaped
consumers’ expectations from banks
and credit unions. As customers
become more digital, more demanding
•  Digital Currency •  Foreign Exchange Rate
and more tech-savvy, legacy bank
infrastructure is strained to support
new modes of engagement and grow
•  Consumer Loans digital efforts significantly. The threat of
•  Peer-to-Peer Lending
substitute products has become
increasingly large in the banking
industry, as companies outside the
•  Online Payments •  Credit Card
industry have begun to offer
specialized financial services that were
traditionally only available from banks.
Substitute products emerged from a
•  Life Insurance •  Digital Life Insurance gap created due to some market
segments not being adequately
serviced by the banks due to the
nature of their products and the
•  Mobile Wallet •  Debit Cards regulating framework that defines their
operations.

Examples of such substitute products

•  Remittances •  Digital Remittances include payment processing and
transfer services, prepaid debit cards
and online peer- to-peer lenders. The
intrusion of these substitute services
•  Robo-advisor •  Investment Manager has cost both Metrobank and the other
major banks considerable revenue.
Metrobank has responded by
establishing the 24/7 access of e-
Traditional Banking Services channels which included ATMs, Cash
Emerging Substitute Products and Services Accept Machines (CAMs), online and
mobile banking.

Other Traditional Services

SME Banking Investment In spite of the important role

Business Banking: Unit Investment Trust Fund
Cash Management Capital Markets that commercial banks are
Corporate Deposit Accounts Health Management Services playing in the economy,
Treasury Products for Corporate Trust Services
Business Overseas Filipino Services substitute products now
Corporate Loans OFW
OFW
Peso
Dollar
Savings Acct.
Savings Account
threaten their survival.
Trade Products & Services
Remit to Account

Figure 15: Disruptions in the Banking Industry

Artificial Intelligence
has the benefits of engaging with customers in intelligent ways
that offer significant cost savings, by providing smarter decision-
making based on customer behavior patterns.
Robotics
Process Automation
automates alerts and notifications.
It offers large-scale cost reduction
in combination w/ increased
flexibility & accuracy of back office Open Banking
tasks. The use of Open APIs that enable
third party developers to build
applications and services around the
Disruptive financial institution.

New
Technology

Internet of Things
Mobile device geolocation is increasingly
being used for enhanced credit/debit Blockchain Technology
card security, with firms also testing the could radically simplify the
use of voice-first digital assistant to payments & transactions world.
conduct transactions. It is being used for secure
document transfer & reduce
settlement costs.

With customers increasingly adapting to digital disruptions and with more and more new types of
competitor solutions arising in this space, “digital” has officially arrived in the banking sector to shine a
spotlight on all major banking functions, described below:

Payments Market provisioning

Decentralized currencies, e.g., leveraging The development of smarter, faster machines
Blockchain technology and mobile money solutions in the field of algorithmic trading (e.g., Palantir
provide compelling alternatives to traditional value and SNTMNT), which are learning to process
transferring systems by streamlining intermediation unstructured information such as news feeds,
processes. will have unpredictable implications on market
Deposits and lending provisioning in terms of volume, volatility and
Alternative lending platforms leveraging peer-to- spread.
peer models are transforming credit evaluation and
sourcing of capital, as well as, narrowing the spread Capital raising
between deposits and lending. Platforms such as In light of the growing interest in startups and
Lending digital democratization widening access to
sources of capital and providing funding to a
Investment management greater number of companies and projects,
A number of disruptors, from automated wealth while investors can play a more autonomous
management services (e.g., Wealthfront) to role in providing capital for investment
social trading platforms, have emerged to opportunities. New platforms enable
provide low- cost, sophisticated alternatives to companies to customize the bene ts for the
traditional wealth managers. investors (e.g., Crowdcube).
Figure 16: Challenges on Business Models

In all scenarios, the standardization

of IT interfaces and communication
standards for banking services and
other disruptive innovations foster the
disaggregation of the value chain,
which was traditionally dominated by
banks operating an integrated
business, i.e., managing large parts
of the value chain in-house. Enabled
by digitization, specialized firms
emerge that focus on specific parts of
the value chain and thereby
challenge incumbent players. A
review of the banking value chain
suggests very possible business
models which will enable each other
in a particular kind of banking
ecosystem.

These five business models present a somewhat idealized picture and hybrid models may co-exist with pure-play
business models if the bank is able to create a strategic differentiator for managing the interface between the client
relationship, product development and transaction processing.

Trusted Advisor. Transaction Product Leader. Managed Universal Banks.

Champion.
Banks choosing “trusted
advisor” as their business
As “transaction
model will focus on
champions,” banks will
exploiting economies of
focus on exploiting
scope and gaining a high
economies of scale
share of their client’s
through partnering with
wealth. The key value
other (bank and non-
proposition of “trusted
bank) providers. This
advisors” is building upon
business model builds
clients’ trust and going
upon a standardized
beyond pure investment
offering at a low cost to
or transaction advisory
end clients and third
services. Furthermore, the
parties. The means of
“trusted advisor” bank
achieving the necessary
distinguishes itself
economies of scale are
through offering tailored
white labeling, acting as a
services based on a deep
transaction consolidator
understanding of clients’
and offering custody and
needs beyond financial
depositary services.
matters. Extending the
Integrating into an
offering into value- added
extensive network as a
services, such as
correspondent bank
concierge services,
allows the “transaction
financial education or
champion” to offer
working seamlessly with
connectivity that smaller
real estate agents,
banks may not be able to
corporate finance
maintain on their own. In
advisors, and philanthropy
addition, a “transaction
experts enables such
champion” might consider
banks to deepen the client
seeking to benefit from
relationship and increase
the disaggregation of the
client loyalty.
value chain by becoming
the banking platform for
unlicensed new entrants.
“Product leaders” will
differentiate themselves
by developing innovative
products for which they
are able to command
premium prices. Rapid
time-to-market enabling
banks to quickly gain
market share is a key
objective for “product
leaders,” enabling them to
maintain their market
position and exploit their
first mover advantage.
Central to the value
proposition of “product
leaders” are superior
insights into technological
and financial engineering
developments and the
capability to translate
client needs into new
products. While trust is a
key asset for “trusted
advisors,” “product
leaders” are valued by
clients for the quality and
performance of their
products.
Solutions.
Banks choosing a
“managed solution
provider” business model
will focus on building
economies of scale
through providing specific
banking solutions to other
providers. In particular,
their specialist offering
allows banks and non-
banks to break up their
internal value chain and to
source capabilities from
the “managed solution
provider.” The focus is on
becoming a solutions
provider rather than a
provider of single
services. Solutions on
offer may range from
regulatory insights, to
specialized investment
advice, as well as, non-
core processes, e.g.,
Know your customer
(KYC), tax, and
payments.
“Universal banks” must
achieve scale in all their
business lines
to achieve low cost levels
and overall efficiency.
Banks choosing this
business model will offer
a comprehensive product
offering across several
industry sectors, i.e.,
retail, private, corporate
and investment banking,
as well as, asset
management. Their key
value proposition is the
maintenance of seamless
control over front-to-back
and the smart reduction of
the value chain depth to
50 percent. The aim is to
provide “universal banks”
with greater flexibility to
tailor to client needs,
particularly by offering
sophisticated products
and services leveraging
capabilities across
business divisions. Their
diversified business mix
will theoretically reduce
the revenue volatility if the
bank is able to manage
the increased complexity
efficiently.
To summarize the impact of digital disruptions on each of the banking functions, the traditional one-stop banking model
will be eroded even further: payments will become more independent from banks, reducing customer touch points and
making partnerships with retailers more important; deposits and lending will become more widely spread across
different platforms, reducing the demand for traditional deposit and investment products; investment management will
become increasingly commoditized by process automation and outsourcing; raising capital will become more
customized to companies and investors’ need to raise capital; and market provisioning will become more automated,
reducing the role of humans and improving transparency. Differentiation through product innovations or personal holistic
advisory services that go beyond pure banking services will become more important than ever to ensure client retention.

Figure 17: The Future of Banking

Given the current trends and depending on the ongoing process of customers adopting new behaviors, the current
and future regulatory environment, the assertiveness of new innovative competitors, agility and willingness to adapt
to the changing environment, by particularly banks, we believe that the following three scenarios for the future of
banking could materialize:

BANK’S DOMINATION
Regulators increase entry barriers for new
digital-driven disruptors, which have had
little regulation thus far, and clients remain
inclined to maintain their primary
relationship with established and trusted
institutions, so banks succeed in
protecting their business model. A pre-
requisite of this scenario is that existing
banks keep pace with the changing client
expectations and invest in new offerings
(through in-house development or
acquisitions).
BANKING ECOSYSTEM
Customers prefer to consume tailored services, existing
BANKING REINVENTED
banks underestimate the power of networks while the
digital revolution largely ignores well-established rules
Customers gain trust in new banking
and boundaries, and disruptive entrants gain significant
players with attractive offerings, as
market share in some market segments. Banks thereby
process outsourcing makes it easier for
lose the exclusive ownership of their client relationship
new banking players to enter the market
for a wide set of services (“one-stop-shop”). Instead,
without significant infrastructure, and
successful banks transform themselves into platforms
existing banks fail to adopt new
offering their capabilities to a wide ecosystem of
technologies sufficiently quickly because
specialized providers. Once likely future scenarios have
they are held back by decades-old
been identified and described, banks should test their
legacy systems. New banking players
strategic choices against them. First and foremost,
leveraging Finance 2.0 ideas thereby
business model choices need to be reviewed and
overtake established banks.
refined.
 Figure 18: Financial Highlights 2017

Net Interest Non-Performing

Margin of 3.75% Loan Ratio of 1%,
from 3.54% last better than the
year industry’s average

Net Interest
Income 16% Loan Growth of
increase 19%

Figure 19: Operating Income

OPERATING INCOME
Rounded of to the nearest Millions
100% The Bank’s strong performance in 2017 was
5,671 5,756 6,559
90% 1,799 3855 driven by robust growth in loans and
8,127 deposits, which in turn resulted in improved
80% 10,958 12,422 margins.
11,603
70% Net interest margin has been steadily
60% moving up, and last year we continued to be
superior than peers. Our NIMs ended the
50% year at 3.75% or 21 basis points higher from
last year, mainly driven by improving asset
40%
48,974 61,406 yields. As a result, net interest income
52,946
30% increased 16% to P61.4 billion, and
accounted for 73% of the Bank’s P83.6
20% billion total operating income. Meanwhile,
10% non-interest income reached P22.1 billion,
which consists of P12.4 billion in service
0% charges and commissions and income from
2015 2016 2017 trust, P3.9 billion from trading and FX gains,
and miscellaneous income of P 6.5 billion.

OTHER NON-INTEREST INCOME

TRADING AND FOREIGN EXCHANGE GAINS
SERVICE FEES, COMMISSIONS AND TRUST INCOME
NET INTEREST INCOME
 Stabilizing operating expense growth following build-up of frontline staff and branch
expansion in 2015 and 2016.

Figure 20: Operating Expenses Figure 21: Staffs and Branches

OPERATING HEADCOUNT DOMESTIC

EXPENSES BRANCHES
Rounded off to the
nearest Millions 17,711
17,608
959
100% 17,174 952
945
80%
27,257 25,778 23,858
60% 2015 2016 2017 2015 2016 2017
40% The Metrobank Group ended the year with 952 branches nationwide on
20% a consolidated basis, most of which are located outside Metro Manila,
allowing the Bank to continue tapping high growth areas in the
0% countryside. The Group also had a network of 2,352 automated teller
2015 2016 2017 machines (ATMs) nationwide as of end-2017 and a total of 17,608
staffs.
OTHER OPERATING EXPENSES
Clearly, Metrobank’s momentum has been steadily building, as the
MANPOWER Bank has effectively sustained its growth trajectory from the previous
year ending the operating expenses wit 8% increase.

Figure 22: Loans and Receivables

LOAN PORTFOLIO
BREAKDOWN
CONSUMER LOAN
2017 Reflective of the robust
growth and positive
COMMERCIAL LOANS CONSUMER LOANS sentiment, the Philippine
CREDIT Stock Market was up an
CARDS AND impressive 28% for the year
26.00% 25% 24% OTHERS 2017. And in support of the
AUTO 21% economic development, the
FINANCE banking industry delivered
46% another strong showing.
Sustaining the momentum
HOME from previous quarters, the
74.00% 75% 76% MORTGAGE loan portfolio expanded by
33% 19% year-on-year to hit P1.3
trillion.
The loan growth continues to be driven by the commercial segment, aligned by the
macroeconomic expansion. The commercial segment led the growth at 20% with
2015 2016 2017 key contributions across large corporates, middle-market commercial names and
even SMEs. The consumer loan portfolio on the other hand increased by 17%.
 Figure 23: Balance Sheet Structure Figure 24: Asset Mix

ASSET MIX
BALANCE SHEET STRUCTURE
Rounded off to the nearest Millions
2015 2016 2017
100%
TOTAL ASSETS 100.00% 100.00% 100.00% 381,044 461,072 427,026
80%
LOANS AND RECEIVABLES - NET 50.39% 56.55% 60.83% 354,069 387,797
60% 492,446
INVESTMENT SECURITIES 27.97% 18.87% 18.64%
40%
OTHER ASSETS 21.64% 24.58% 20.53% 1,060,868 1,265,469
20% 887,202

0%
2015 2016 2017

TOTAL LIABILTIES AND EQUITIES 100.00% 100.00% 100.00% OTHER ASSETS

TOTAL LIABILITIES 88.45% 89.04% 90.19% SECURITIES
LOANS AND RECEIVABLES
DEMAND DEPOSIT 13.29% 15.91% 16.57%
SAVINGS DEPOSIT 26.56% 29.19% 29.11% Total resources for the Group closed at a new high of
P2.1 trillion, cementing Metrobank as one of the
TIME DEPOSIT 30.80% 27.74% 26.33%
leaders in the local industry. Net loans and
LONG TERM NEGOTIABLE receivables totaled P1.3 trillion, covering 60.83% of
CERTIFICATES OF DEPOSITS 0.81% 1.22% 1.44% the total assets.
OTHER LIABILITIES 17.01% 14.99% 16.74%
The Group ended the year with total deposits of P1.5
trillion, with low cost deposits increasing 12%. This
TOTAL EQUITY 11.55% 10.96% 9.81% provided the stable low cost funding that fueled our
healthy loan expansion Total deposits consists of
ATTRIBUTABLE TO: demand deposits, savings deposits, time deposits,
EQUITY HOLDERS OF THE PARENT and long term negotiable certificate of deposits.
COMPANY 11.00% 10.45% 9.71%
Total equity attributable to the equity holders of the
OTHER EQUITY RESERVES 0.00% 0.00% -0.36% parent company is P202 billion, an increase of 3%
NON-CONTROLLING INTEREST 0.54% 0.51% 0.46% from last year.

Figure 25: Basel III Capital Ratios

The Bank’s asset quality continued to be better

than the industry standard in 2017 with a
nonperforming loans (NPL) ratio of 1%. Capital
ratios, on the other hand, were ahead of Bangko
Sentral ng Pilipinas (BSP) Basel III minimum
requirements. Metrobank’s total capital adequacy
ratio (CAR) came in at 14.4% for the year while
Common Equity Tier 1 (CET 1) ratio was at
11.8%.
Metrobank was rated by the Moody’s and Fitch Ratings with Baa2 and BBB- respectively, similar with its rating to the
Philippines as a whole. Both investment grade ratings mean it has adequate capacity to meet its financial commitments.
However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the
bank to meet its financial commitment.
Figure 26: Financial Ratios

2017 2016 2015

PROFITABILITY The table shows the
EARNINGS PER SHARE 5.73 5.61 5.86 increasing earnings per
GROSS PROFIT MARGIN 0.76 0.78 0.75 share which is now
P5.73, higher than last
PRICE/EARNINGS RATIO 17.63 12.94 13.75 year's due to the
increase of the net
RETURN ON ASSETS 0.92% 0.99% 1.11%
income. Due to the
RETURN ON EQUITY 9.16% 9.28% 10.83% increased of loan
DIVIDEND YIELD 0.99% 1.38% 0.93% portfolio, increasing the
NET INTEREST MARGIN 3.75% total assets for 2017
3.54% 3.54% and the increased of
deposits, the company
63.51 61.75
BOOK VALUE PER SHARE 58.97 had been able to utilize
the resources thus
FINANCING gaining greater net
interest income. As
DEBT RATIO 90.19% 89.04% 88.45% shown in the table, net
EQUITY RATIO 9.71% 10.45% 11.00% interest margin
DEBT/EQUITY RATIO 929.02% 852.26% 803.77% increased from the last
year’s stable 3.54% to
LIQUIDITY 3.75%. However, return
on assets decreased to
WORKING CAPITAL 246,284 0.92%, indicating that
240,065 244,783
although there was
CURRENT RATIO 1.13 1.16 1.17 growth, resources were
SOLVENCY RATIO 1.11 1.12 1.13 not utilize that
efficiently, similarly with
ACTIVITY the return on equity.
ASSET TURNOVER 0.041 0.037 0.039