Afternoon DelightAfternoon Delight
““The way to succeed is by The way to succeed is by being a better evaluator and being a better evaluator and
manager of risk than manager of risk than competition”competition”
Glenn C. AlbertGlenn C. Albert
• MAJOR PROVIDER OF MEDIUM TO LONG - TERM FUNDS FOR: - INFRASTRUCTURE AND LOGISTICS - ENVIRONMENT - SMALL AND MEDIUM ENTERPRISE DEV’T. - SOCIAL SERVICES (HOUSING, HEALTH CARE, EDUCATION)
• FIRST PHILIPPINE BANK TO BE ISO 14OO1
• FINANCIAL INDICATORS AS OF 12-31-O6 - P235 BILLION IN RESOURCES - P 35 BILLION AUTHORIZED CAPITAL - P 3.7 BILLION NET INCOME
• COUNTRY’S PREMIERE DEVELOPMENT FINANCIAL INSTITUTION
DBP HEDGING PROGRAM FOR DBP HEDGING PROGRAM FOR EXPORTERSEXPORTERS
TO HELP EXPORTERS HEDGE THEIRUS DOLLAR INFLOWS AGAINST THEFLUCTUATIONS OF FX RATES
ALLOWS THE EXPORTER THE RIGHT BUT NOT THE OBLIGATION TOSELL HIS US DOLLARS AGAINST PHILIPPINE PESOS TO DBP AT ASPECIFIED PRICE ON A SPECIFIED DATE
• TERM OF 1 TO 3 MONTHS• MINIMUM AMOUNT OF $1O,OOO.OO• PROTECTION RATE• INSURANCE FEE BASED ON MARKET RATE
On On DAY 1DAY 1, exporter and DBP agree on the following:, exporter and DBP agree on the following: Protection Rate Protection Rate : USD/PHP 46.00: USD/PHP 46.00 USD/PHP Rate at Trade Date USD/PHP Rate at Trade Date : USD/PHP 46.20: USD/PHP 46.20 Notional Amount Notional Amount : $ 10,000.00: $ 10,000.00 Insurance FeeInsurance Fee : To be determined ( : To be determined (basedbased
on market conditions) on market conditions)
*Assuming rate of option fee based on market conditions is*Assuming rate of option fee based on market conditions is : 0.80% : 0.80% Insurance fee in USD = 0.8% x Notional AmountInsurance fee in USD = 0.8% x Notional Amount
= 0.8% x $10,000= 0.8% x $10,000 = $ 80= $ 80
EXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTIONEXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTION
EXPORTERS HEDGING PROGRAM
On On MATURITY DATEMATURITY DATE, ,
USD/PHP exchange rate : 46.40
Protection Rate : 46.00
SCENARIO 1: Peso Depreciates from 46.20 46.40
Exporter gains, he may sell his $10,000 at 46.40 to DBP
ACTUAL GAIN = (Exchange Rate at MATURITY) – ACTUAL GAIN = (Exchange Rate at MATURITY) – (Protection Rate) – (Protection Rate) –
(Insurance Fee in FX TERMS)(Insurance Fee in FX TERMS)
= P 46.40 – P46.00 – P 0.37 = P 46.40 – P46.00 – P 0.37 ($80 x($80 x P46.20)/$10,000P46.20)/$10,000
= = P 0.03 per dollarP 0.03 per dollar
EXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTIONEXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTION
EXPORTERS HEDGING PROGRAM
On On MATURITY DATEMATURITY DATE, ,
USD/PHP exchange rate : 45.00
Protection Rate : 46.00
SCENARIO 2: Peso Appreciates from 46.20 45.00
Exporter is covered at the protection rate, he sells his $10,000 at 46.00 to DBPOPPORTUNITY GAIN = (Protection Rate)OPPORTUNITY GAIN = (Protection Rate)
- (Exchange Rate at (Exchange Rate at MATURITY)MATURITY)
- (Insurance fee in FX TERMS)- (Insurance fee in FX TERMS)
= P 46.00 – P45.00 – P 0.37= P 46.00 – P45.00 – P 0.37 = = P 0.63 per dollarP 0.63 per dollar
EXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTIONEXAMPLE OF FOREIGN EXCHANGE INSURANCE PROTECTION
EXPORTERS HEDGING PROGRAM
FOREIGN EXCHANGE FOREIGN EXCHANGE FORWARD RATE PROTECTIONFORWARD RATE PROTECTION
A foreign exchange contract where only the net difference between the agreed dollar/peso forward rate and the market rate shall be settled at maturity
FOREIGN EXCHANGE FOREIGN EXCHANGE FORWARD RATE PROTECTIONFORWARD RATE PROTECTION
• TERM OF 3O DAYS TO 12 MONTHS• MINIMUM AMOUNT OF $1O,OOO• NEEDS CREDIT APPROVAL FROM DBP
FIXING RATEFIXING RATE is the USD/PHP RATE is the USD/PHP RATE at at Fixing DateFixing Date
Fixing Date Fixing Date -- One business day prior to Maturity DateOne business day prior to Maturity Date
Fixing Rate is obtained from the AM PDS weighted Fixing Rate is obtained from the AM PDS weighted average rate on the REUTERS page PDSPESO1average rate on the REUTERS page PDSPESO1
PESO NET SETTLEMENT
Peso Net Settlement Amount = Fixing Rate – Peso Net Settlement Amount = Fixing Rate – NDF RateNDF Rate
Peso Net Settlement Amount will be paid on Peso Net Settlement Amount will be paid on the maturity date of the NDF Contractthe maturity date of the NDF Contract
FOREIGN EXCHANGE FORWARD RATE PROTECTIONFOREIGN EXCHANGE FORWARD RATE PROTECTION
EXPORTERS HEDGING PROGRAM
EXPORTER DBPExporter Pays P 0.28 x Exporter Pays P 0.28 x
Notional Amount to DBPNotional Amount to DBP
ON SETTLEMENT DATE
FX Forward Rate : 46.22 (computed in previous example)
USD/PHP Rate (Fixing Rate) : 46.50
EXAMPLE:
FX Forward Rate : 46.22 Notional Amount : $1O,OOO
Exchange Rate : 46.5OExporter Pays: (46.5O - 46.22) x $1O,OOO = P 2,8OO
If Fixing Rate > FX Forward Rate, thenIf Fixing Rate > FX Forward Rate, then
FOREIGN EXCHANGE FORWARD RATE PROTECTIONFOREIGN EXCHANGE FORWARD RATE PROTECTION
EXPORTERS HEDGING PROGRAM
EXPORTER DBPDBP Pays P 0.22 x DBP Pays P 0.22 x Notional Amount to Notional Amount to
ExporterExporter
ON SETTLEMENT DATE
EXAMPLE:
FX Forwrd Rate = P 46.22 Notional Amount = $1O,OOO
USD/PHP Rate = 46.OO
DBP Pays: (46.22 - 46.OO) x $1O,OOO = P 2,2OO
FX Forward Rate : 46.22
USD/PHP Rate (Fixing Rate) : 46.00
If Fixing Rate < FX Forward Rate, thenIf Fixing Rate < FX Forward Rate, then
FOREIGN EXCHANGE FORWARD RATE PROTECTIONFOREIGN EXCHANGE FORWARD RATE PROTECTION
EXPORTERS HEDGING PROGRAM
Evaluation Criteria
DBP shall finance projects which are technically, financially and economically viable and environment-friendly
CAMP ANALYSIS
CASH• Financial ratios• Balance sheet items
ADMINISTRATION• Mgmt. Experience• Owner’s health• Succession plan• Personal networth• Attitude towards banks
MARKET • Market Conditions • Clientele• Growth in sales
PRODUCTION• No. of suppliers• Inventory turnover• Potential to increase production and service capacity• Quality of business location
Does due diligence on the borrower’s:Does due diligence on the borrower’s:√ S S tabilitytability√ E E ntrepreneurshipntrepreneurship√ R R eputationeputation√ R R epayment Behaviorepayment Behavior
Sources information from Sources information from character references, character references, background and credit investigationbackground and credit investigation
Please Contact:
Senior Vice President Corazon D. CondeHead, SME DepartmentDevelopment Bank of the PhilippinesTel. No. 815-1520
OR
SAVP Dulce Ranosa Celia S. Patilan Tel. Nos. 818-9511 locals 2557/2529 (Trunkline) 840-3435/ 892-5727 (Direct Line)