PAMANTASAN NG LUNGSOD NG MARIKINA

Rainbow St. cor. Sierra Madre St. SSS Village, Concepcion II, Marikina City

INSTITUTE OF GRADUATE STUDIES

SY 2019 – 2020 (First Semester)

CHINA BANKING CORPORATION (CBC)

In Partial Fulfillment of the Requirements for

Business Policies and Strategic Management
(BUS 122)

Submitted by:

Buensuceso, Bren Ardel L.

De Mesa, Dwight Jenna L.
Panibio, Gladys Gay
Porras, John David
Posadas, Resty J.

Submitted to:

Dr. Aletho Cruz

November 23, 2019

EXECUTIVE SUMMARY

China Banking Corporation (China Bank, stock symbol CHIB) was incorporated
on July 20, 1920 and commenced business on August 16 of the same year as one of
the first privately-owned local commercial bank in the Philippines. It resumed operations
after World War II on July 23, 1945 and played a key role in the post-war reconstruction
and economic recovery by providing financial support to businesses and entrepreneurs.
CHIB was listed on the local stock exchange in September 1927 and acquired its
universal banking license in 1991. The Bank started by mainly catering to the Chinese-
Filipino commercial sector, but has since expanded its market scope to include the retail
and consumer segments. Its core banking franchise stems mainly from its 98-year
history in the Philippines, a factor that has enabled it to become deeply entrenched
within the socioeconomic fabric of the Chinese-Filipino community. The Bank‘s market
comprises the corporate, commercial, middle, and retail markets. It provides a wide
range of domestic and international banking services, and is one of the largest
commercial banks in the country in terms of assets and capital. As it sliced through
demographic divisions -- age, gender, socioeconomic status -- a stirring slogan, “Bench
is forever”, became the company’s abiding creed.

The EFE rating of China Bank is at 2.80 which indicate that it is just average in
responding to opportunities and threats.

According to the IFE matrix, the strengths of China Bank are good image,
escalating financial performance, and preferred bank by Filipino-Chinese businessmen.
These may be some of the factors that keeps China Bank in the top 10 financially stable
bank as reported by Bangko Sentral ng Pilipinas. The IFE rating of the organization is
2.60 which is considered as average in the in responding to its strengths and
weaknesses.

Some strategies like product development, market development and market

penetration were recommended to achieve the company’s goals in accordance to its
vision and mission statements.
I. INTRODUCTION

China Banking Corporation (CBC)

China Banking Corporation (China Bank) is one of the leading private universal
banks in the Philippines. China Bank offers full range of banking products and services
to institutional (corporate, middle market/commercial, SMEs) and individual (retail, mass
affluent, high net worth) customers, as well as thrift banking, investment banking,
insurance brokerage, and bancassurance through its subsidiaries China Bank Savings,
China Bank Capital, China Bank Securities, China Bank Insurance Brokers, and
Manulife China Bank Life Assurance.    

The China Bank stock (PSE: CHIB) is listed on the Philippine Stock Exchange
(PSE) and is a member of the SM Group, one of the largest conglomerates in the
Philippines.

HISTORY

China Bank was founded by Dee C. Chuan, a leading business leader and
philanthropist, Don Albino Sycip, known as the Dean of Philippine Banking, and ten
other prominent businessmen. The Bank opened for business on August 16, 1920 on
No. 90 Quintin Paredes St., Binondo (formerly known as Calle Rosario).

With a modern Chinese organization structure and guided with an in-depth

understanding of the way Chinese merchants do business like operating on the principle
of xinyong or trustworthiness, China Bank steadily grew and flourished. However, when
Japan invaded Manila in 1942, the Bank was liquidated by the Japanese Military
authorities. The Bank reopened on July 23, 1945 and played a key role in post-World
War II reconstruction and economic recovery by lending heavily to businesses and
entrepreneurs in critical industries.

Since then, a succession of highly capable leaders and visionaries steered the
Bank into decades of successful operations. China Bank was among the first local
banks listed on the Manila Stock Exchange in 1927, the first in Southeast Asia to
process deposit accounts on-line in 1969, and the first to offer telephone banking in the
Philippines in 1991—the same year China Bank became a universal bank.

Driven to be a catalyst of wealth creation, China Bank has been growing and
improving to serve customers better. China Bank embarked on an aggressive branch
network expansion program in 2006, quadrupling the number of branches from 148 in
2006 to 621 as of May 2019 (including 162 China Bank Savings branches). This wide
branch network is complemented by electronic banking channels that provide secure
and reliable 24/7 banking service: 972 ATMs, China Bank TellerPhone, China Bank
Online, and China Bank Mobile Banking App.
 With nearly a century of solid financials, strong commitment to quality service,
significant contribution to the country’s financial landscape, and an enduring legacy of
successful partnerships with generations of clients, China Bank remains one of the most
respected, trusted, stable, and profitable financial institutions in the country.

RECENT DEVELOPMENTS

China Bank Mobile App

In 2018, China Bank launched the new and improved China Bank Mobile App.
Aside from the usual functionalities for convenient banking on the go, the app has pre-
login features like ATM/Branch locator, exchange rates viewer, and loan
calculator/simulator, and new functionalities that no other mobile banking app has:
SLEX RFID Reload for convenient on-the-go reloading of SLEX RFIDs, JUMP or Just
Use your Mobile Phone (Pay to Mobile) feature, and NOW or No card On Withdrawal
(Emergency Cash) feature.

In 2019, China Bank partnered with AF Payments, becoming the first bank to
offer beep™ card reloading via ATM. China Bank cardholders can conveniently check
their card balance and reload P100 up to P10,000 to their card through China Bank and
China Bank Savings ATMs located near LRT & MRT stations and P2P bus terminals.

P30 billion retail bonds maiden issue

In July 2019, China Bank raised P30 billion through its maiden issue of fixed rate
bonds. It is one of the largest corporate bond issuances on a single issuance in the
market to date, a clear indication of solid client and investor support. A follow-up to its
successful P10.25 billion Long-Term Negotiable Certificates of Time Deposit (LTNCD)
offer last year, the largest single LTNCD issuance for 2018, China Bank is issuing up to
P20 billion LTNCD to support its asset generation plans and expansion programs.
These fund-raising activities not only bode well for China Bank’s future, but also affirm
its commitment to providing customers with higher yielding investment alternatives to
help them make the most of their hard-earned money.

Binondo Heritage Restoration project

For 2019, the bank has begun the reconstruction and restoration of the Bank’s
Binondo Business Center, its historic original headquarters built in the 1920s. The
Binondo Heritage Restoration Project will seek to recapture the original architecture of
the center when it was first constructed, which has since been lost to various
remodelling efforts after WWII. The building will also be retrofitted to comply with
modern safety standards. The project is slated for completion in time for the Bank’s
centennial celebration in 2020.

Green Bond
 In October 2018, the Bank inked a US$150-million agreement to issue a bond to
International Finance Corporation (IFC), the sole investor, in order to fund a fresh wave
of environmentally beneficial projects to mitigate climate change. The  bond  proceeds 
will  be  used  to  finance  climate-smart  projects,  including renewable  energy,  green 
buildings,  energy  efficiency,  and  water  conservation,  in  accordance  with  the Green
Bond Principles.

Long-term Deposits

The Bank successfully raised ₱10.25 billion through a public offering of peso-

denominated Long-Term Negotiable Certificates of Time Deposits (LTNCD),
the first tranche of its planned ₱20 billion LTNCD offering. This  was  the  largest
LTNCD issuance in the  banking industry so far  for  2018  and  the biggest  in  the 
Bank’s  history.  The proceeds of the fund-raising activity will be used to support China
Bank’s medium-term strategic initiatives and expansion programs.

To support its business growth strategy, China Bank issued ₱6.35 billion of
LTNCDs in June 2017, the second tranche from its ₱20-billion shelf issue. The initial
tranche of ₱9.58-billion was issued last November 2016

Stock rights offer  

In 2017, China Bank completed its stock rights offer in the second quarter, with
the full subscription of 484 million additional common shares amounting to ₱15 billion as
part of its continuous proactive capital management strategy to enhance financial
flexibility and balance sheet to support the ongoing strategic business expansion. China
Bank conducted stock rights offering in 2014 where it is raised P8 billion in fresh capital.

Investment house subsidiary

CBCC continued to make significant headway in the capital markets by

participating in several issue management and underwriting deals, including Ayala
Land, Inc.’s pioneering ₱4.3-billion short-dated notes (sole lead underwriter), San
Miguel Corporation’s ₱20 billion retail bonds (joint issue manager & joint lead
underwriter), and 8990 Holding Inc.’s inaugural ₱5 billion preferred shares (sole issue
manager & lead underwriter), among others.

CBCC was widely recognized by The Asset during its 2017 Triple A Awards,
having received the following distinctions: Best Bond Adviser, Best Corporate Bond for
Ayala Corporation’s US$400-million Fixed-For-Life Bonds, Best Local Currency Bond
for the Ayala Land deal short-dated notes and Best Follow-On for Del Monte Pacific’s
US$200-million preferred shares. CBCC also garnered top honors at 2017 Philippine
Dealing System Awards, bagging the Top Issue Manager/ Arranger (Investment House
Category) distinction, as well as a Special Citation for the pilot issuance and first official
issuance under the Enrolled Securities Program of the PDEx. Furthermore, Alpha
Southeast Asia awarded CBCC the Best Bond for Retail Investors in Southeast Asia for
the Bureau of the Treasury’s ₱181-billion retail treasury bond.
 In March 2017, the investment house concluded its acquisition of ATC Securities,
Inc., which has been renamed China Bank Securities Corporation (“CBSec”), the stock
brokerage arm of CBCC, which enables the Bank’s clients to participate in initial public
offerings (IPOs) and trade shares on the PSE. In June 2016, CBCC incorporated CBC
Assets One (SPC) Inc. (“CBC Assets One”), a special purpose company that engages
in securitization transactions. In its first year of operations, CBSec was a key broker in
the ₱8.6 billion IPO of Eagle Cement Corporation and the preferred shares offering of
8990 Holdings, Inc.

Syndicated term loan

China Bank secured a US$158 million three-year term loan facility from regional
and international banks in June 2015. The facility marks our successful return to the
international markets since our US$125 million floating rate certificates of deposit
(FRCD) issue in 1996 and 1997. The facility carried an interest margin of 1.40% per
annum over 3 months Libor. With the strong growth of our foreign currency deposit and
favorable changes in market conditions, the loan was paid off in June 2017, one year
ahead of schedule.

Business transformation project: new core banking system

In 2017, China Bank also launched its corporate online banking platform which
offers clients a 360° view of their cash positions and allows more efficient cash flow
management. Meanwhile, The Asian Banker awarded China Bank the Best Core
Banking Implementation (Mid-sized banks) for the successful upgrade and launch of the
Finacle Core Banking System. 

China Bank rolled out Finacle Core Banking Solution (FCBS) in August 2015.
The move to replace the legacy system with the robust and more powerful FCBS from
Infosys, a global leader in consulting, technology and outsourcing solutions, is part of
the overall upgrade and enhancement initiative dubbed China Bank/CBS PLUS
(Program to Level Up our Service) to support the Bank’s expanding operations and
drive customer loyalty, growth, and innovation. China Bank acquired Finacle in 2012 for
significantly greater computing power and enhanced capability and flexibility to improve
service quality, optimize customer experience, manage risk and regulatory compliance
more effectively, and easily adapt to changing customer demands and market trends.
Following the successful migration to the new core banking system, China Bank
upgraded its personal online banking website, China Bank Online, to include more
customer friendly features, a new look, and a more robust and secure platform.

Joint venture and acquisitions

Aside from organic growth, China Bank seeks out opportunities to build scale. In
2007, we entered into a bancassurance joint venture with Manufacturers Life Insurance
Company (Manulife), the fifth largest insurance company in the world, to form Manulife
China Bank Life Assurance Corp. (MCBL), making China Bank a one-stop shop for
customers’ banking and insurance needs. In the same year, we also acquired The
Manila Banking Corporation (Manila Bank), the oldest savings bank in the country, and
established our thrift bank arm, China Bank Savings (CBS). In November 2012, we
acquired Pampanga-based rural bank Unity Bank to fast-track the branch expansion
program of CBS. The acquisition boosted CBS’ network with 15 Unity Bank branches
and additional 24 branch licenses in the restricted areas granted by Bangko Sentral ng
(BSP) under the Strengthening Program for Rural Banks (SPRB) Plus. With a mandate
to grow its own branch network, CBS launched its “mini branch” concept in 2013, which
called for the opening of full service mini branches in retail outlets like Savemore and
Hypermart, both popular grocery chains by the SM Group.  In 2014, we acquired
Plantersbank, the country’s largest private development bank and leading bank for
SMEs. The deal bolstered our corporate strategy in two areas—growing China Bank’s
middle market/SME portfolio and accelerating the branch network expansion program.
In the same year, China Bank’s equity stake in MCBL was raised to 40% from 5%.

Investment house subsidiary

The BSP approved in May 2015 China Bank’s P500 million venture in a new
investment house subsidiary, China Bank Capital Corporation (China Bank Capital). 
China Bank Capital provides a wide range of services that include debt and equity
capital raising and underwriting, project finance, mergers and acquisitions, and financial
advisory services to all public and private companies. In April 2016, China Bank Capital
acquired ATC Securities, renamed China Bank Securities Corporation (China Bank
Securities), and a special purpose corporation to hold the assets for the securitization
transactions of China Bank Capital, renamed CBC Assets One (SPC), Inc. China Bank
Securities’ primary business is to provide clients with stock brokerage as well as
securities research and analysis services.  It also enables China Bank Capital to do
Initial Public Offerings (IPOs) and list these IPO shares in the PSE.  In just three years,
China Bank Capital has risen to prominence, winning major local and international
awards, including Top Corporate Issue Manager/Arranger (Philippine Dealing System
Group), Best Fixed Income House (Investment House Association of the Philippines),
and Best Bond House and Best Bond Adviser-Domestic (The Asset), among others.

Credit Card

In 2015, China Bank’s 95th anniversary, China Bank MasterCard was launched. 
The China Bank Prime Mastercard is the “go-to” card for everyday expenses. The China
Bank Platinum Mastercard is the ultimate privilege lifestyle card. The China Bank World
Mastercard is the card that gives world-class privileges, taking luxury to a whole new
level. In August 2019, China Bank launched two new credit card variants, bringing its
credit card offerings to five. The China Bank Cash Rewards Mastercard offers up to 6%
cash rewards on purchases. The China Bank Freedom Mastercard offers perpetual
waiver of annual membership fees and access to exclusive rewards and deals. All five
credit card variants are accepted worldwide, equipped with EMV and PayPass
contactless technology, and offer perks and privileges for a more rewarding shopping
experience.

‘Branch Re-Design’ project  

China Bank embarked on a major “branch re-design project” in 2015 as part of

the ongoing expansion and development plans to provide customers with enhanced
levels of service, convenience, and engagement. China Bank BGC-One World Place,
which opened in September 2015, is the pilot branch for the new branch design,
together with Cebu SRP–Seaside Mall Branch in November. The new design features
an open layout, dynamic seating, contemporary counters and fixtures, and a
progressive yet timeless ambience that still capture the rich heritage and character of
the Bank, while maintaining a warm and personal customer experience.

Syndicated term loan

China Bank secured a US$158 million three-year term loan facility from regional
and international banks in June 2015. The facility marks our successful return to the
international markets since our US$125 million floating rate certificates of deposit
(FRCD) issue in 1996 and 1997. The facility carried an interest margin of 1.40% per
annum over 3 months Libor. With the strong growth of our foreign currency deposit and
favorable changes in market conditions, the loan was paid off in June 2017, one year
ahead of schedule.

Business transformation project: new core banking system

China Bank rolled out Finacle Core Banking Solution (FCBS) in August 2015.
The move to replace the legacy system with the robust and more powerful FCBS is part
of the overall upgrade and enhancement initiative dubbed China Bank/CBS P.L.U.S.
(Program to Level Up our Service) to support the Bank’s expanding operations and
drive customer loyalty, growth, and innovation. China Bank acquired FCBS in 2012 for
significantly greater computing power and enhanced capability and flexibility to improve
service quality, optimize customer experience, manage risk and regulatory compliance
more effectively, and easily adapt to changing customer demands and market trends.

Credit ratings 

In 2017, China Bank received an investment grade credit rating of Baa2 (the
same level as the Philippine sovereign rating and at par with the country's top three
banks) from Moody’s Investors Service, one of the world leaders in corporate business
ratings. Prior to this, international credit rating agency Fitch Ratings affirmed China
Bank’s Long-Term Issuer Default Rating at ‘BB+’ and its Viability Rating at ‘bb+’ with
stable outlook in February, following an upgrade in July 2016.

VISION
Drawing strength from our rich history, we will be the best, most admired, and
innovative financial services institution, partnering with our customers, employees, and
shareholders in wealth and value creation.

MISSION

We will be a leading provider of quality services consistently delivered to institutions,

entrepreneurs, and individuals here and abroad, to meet their financial needs and
exceed their rising expectations.

We will be a primary catalyst in the creation of wealth for our customers, driven by a
desire to help them succeed, through a highly engaged team of competent and
empowered professionals, guided by in-depth knowledge of their needs and supported
by leading-edge technology.

We will maintain the highest ethical standards, sense of responsibility, and fairness with
respect to our customers, employees, shareholders, and the communities we serve.

CORE VALUES

II. RESEARCH DESIGN AND METHODOLOGY

 This paper will utilize a descriptive quantitative/qualitative design. It will involve
descriptions and analysis of the organization’s external factors that considerably affect
its operations such as the economic performance, legal regulations and policies
concerning the industry, socio-cultural factors, and technology. These factors have
significant impacts on the company’s operations and on the financial services industry in
general.

This study will also include an industry and competitor analysis and thus, will
involve a description and evaluation of the current situation of the financial services
industry as a whole. It will also tackle critical success factors for the industry. Moreover,
an internal analysis will also be an integral part of the study and shall explain the
organization’s current vision and mission statements and its operating and financial
performance. Lastly, this paper will also recommend appropriate strategies and based
on critical analyses of the data gathered for the study.

This paper requires both quantitative and qualitative data as required in the
different types of analyses stated above. These data were sourced from publications
and articles released by different international and local government agencies such as
Bangko Sentral ng Pilipinas (BSP), Anti-Money Laundering Council (AMLC), Securities
Exchange Commission (SEC) and other private organizations on the internet such as
China Banking Corporation, Security Banking Corporation and Rizal Commercial and
Banking Corporation. Internal information of different companies involved in the study
such as financial statements were gathered from the websites of the aforementioned
companies. Other important and relevant data were obtained through the inputs of two
employees working in the financial services industry which are also part of the research
team.

The quantitative/qualitative data collected can be analyzed manually or by the use of

computer software such as Microsoft Excel. Qualitative data analysis shall involve the
use of different tools described which are applicable for strategic management such as
SWOT analysis, SPACE Matrix, IE Matrix, and Grand Strategy Matrix among others.
Comparative analysis shall also be employed in such a manner that data are presented
so that a clear comparison can be made among the different financial institutions under
study.

III. EXTERNAL ANALYSIS

III.A. MACROENVIRONMENTAL ANALYSIS

Legal Factors

Legal factors acquire a very important role in the context of the banking and
financial services sector. Traditionally, these financial institutions have held immense
power and influence. Due to this, the level of government scrutiny and regulation they
must deal with is also very high. However, because of being the leading repositories of
the public’s savings, the banks must be regulated, and still strict regulation has often
been criticized for hindering growth. Apart from it the level of involvement between the
banks and the government has also been high since always.

The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the
Philippines. It was established on 3 July 1993 pursuant to the provisions of the 1987
Philippine Constitution and the New Central Bank Act of 1993. The BSP took over from
the Central Bank of Philippines, which was established on 3 January 1949, as the
country’s central monetary authority. The BSP enjoys fiscal and administrative
autonomy from the National Government in the pursuit of its mandated responsibilities.

The Anti-Money Laundering Council (AMLC) was created pursuant to Republic

Act No. 9160, otherwise known as the “Anti-Money Laundering Act of 2001” (AMLA), to
protect the integrity and confidentiality of bank accounts and to ensure that the
Philippines shall not be used as a money laundering site for the proceeds of any
unlawful activity.

The AMLC is the Philippines’ Financial Intelligence Unit (FIU) tasked to

implement the AMLA, as amended by Republic Act Nos. 9194, 10167, and 10365, as
well Republic Act No. 10168, otherwise known as the “Terrorism Financing Prevention
and Suppression Act of 2012”

Relevance:

This is a THREAT to China Bank since Bangko Sentral ng Pilipinas (BSP) and
Anti-Money Laundering Council (AMLC) affect the state of banking and financial
services sectors in the Philippines. These government institutions can intervene matters
regarding banking transactions, leaving the industry susceptible to political influence.

Economic Factor

Banks and economic growth are interrelated. A growing economy is good for
banking sector and a healthy banking sector can be good for the regional economy.
Investment banks play an important role in the regional economies and this is
particularly true in the case of the US economy. In case of the mixed economies, large
corporations and governments depend upon the investment banks when they must
raise funds. In the 21st century, the banks have emerged as important players
facilitating business growth. They have emerged as critical partners for small and large
businesses helping them with loans, consumer transactions and several other things.
 The 2008 crisis had started in the US subprime mortgage market, which crept
into financial markets and led failing banks to either be rescued by governments or be
closed down. However, the Philippine banking system was relatively insulated with bank
failures contained within the rural banking sector whose small assets relative to the total
sector’s resources posed little to no systemic risk.

Nevertheless, the Bangko Sentral ng Pilipinas (BSP) has been fortifying

regulatory standards under the international Basel 3 framework since 2014 to ensure
that the country’s financial system remains capable of weathering potential shocks that
could spill over to the rest of the economy.

“At the height of the 2008 Global Financial Crisis, the BSP prudently considered
opportunities for monetary policy easing and infusion of appropriate levels of liquidity
amid the potential tightening of financial conditions. This in turn, helped maintain the
efficient functioning of the financial markets and helped avert the shrinkage of domestic
markets,” BSP Deputy Governor Chuchi G. Fonacier said in an e-mail.

Among these strings of reforms include the 10% capital adequacy ratio (CAR),
the 5% leverage ratio, and a framework for domestic systematically important banks
(DSIBs) among others. The standards imposed by the BSP are well above the minimum
standards of 8% for CAR and 3% for the leverage ratio set under the Basel 3 regime.

CAR indicates the banks’ ability to absorb losses from risk-weighted assets while
the leverage ratio represents how much capital banks should have in hand to cover
non-risk weighted assets.

These reforms will boost buffers maintained by big banks against potential risks,
complementing the 6% common equity Tier 1 ratio and the 7.5% Tier 1 ratio imposed by
the BSP.

Relevance:

This is a THREAT to China Bank since financial institutions are important

partners of the economy. Economic factors like inflation and exchange rates affects the
currencies of different countries and its value and may cause instability to banks and
other financial institutions. Additionally, foreign investors meeting twice before providing
funds when a country’s currency value is high and unstable.

Technological Factor

Technology is virtually everywhere in the 21st century. A large part of the tasks
carried out by the banks are carried out online. Information technology has taken center
stage and from customer accounts to loans and insurance, several services can be
availed of online. Technology has added convenience to banking. However, some
issues have also arisen amid all this technological development and innovation. Privacy
and security concerns have also grown bigger with the rising use of technology.  Banks
have to spend significantly large sums on the maintenance of a large technological
infrastructure. Apps are common and customers use them any time from their
smartphones to shop and pay online. These apps are full of features and make it easy
to pay bills online.

Relevance:

This is both an OPPORTUNITY and a THREAT to China Bank. An opportunity

because this provides convenience to its clients as they can manage their financial
transactions through mobile devices. A threat because of the continuous growth of
technology, personal information is at risk.

Socio-Cultural Factor

Sociocultural forces too can have a deep impact on the banking industry.
Changing social trends and people’s preferences can affect the business and growth of
the banking brands. Consumer demographics and people’s attitudes towards the
financial services have also changed a lot. The millennials whether students or
professionals make use of credit cards for small and big transactions. Businesses
whether small or big are more open to taking financial assistance from the banks.
Consumer confidence has surged owing to economic factors but socially to the
acceptance of bans and banking services has risen.

An article posted on 03 June 2019 at Philippine Star discusses that microfinance

loans jumped by more than 32 percent to P22.61 billion last year from P17.11 billion in
2017 as the number of microfinance-oriented banks almost doubled, the Bangko Sentral
ng Pilipinas (BSP) said in the latest report on regional economic developments in the
Philippines.

The BSP said microfinance service providers surged by 99 percent to 2,106 last
year from 1,057 nationwide in 2017, while the number of borrowers inched up to 1.98
million from 1.95 million.

In terms of the share to total microfinance loans, Calabarzon region or Cavite,

Laguna, Batangas, Rizal and Quezon cornered 72.3 percent or P16.35 billion of the
total loans and 78.9 percent or 1.56 million of the total borrowers.

Relevance:

It is an OPPORTUNITY to China Bank because cultural influences, such as

buying behaviors and necessities, affect how people see and use banking options.
Consumer’s turn to banks for advice and assistance for loans. They seek knowledge
regarding savings accounts, bank related transactions and more.

IV. INDUSTRY AND COMPETITOR ANALYSIS

IV.A INDUSTRY ANALYSIS

Payments Everywhere

The payments industry has been, and will continue to be, one of the most
dynamic areas of innovation in the banking industry. Impacted by changing consumer
expectations and driven by technological advances, innovation will continue to come
from traditional financial institutions, fintech firms and big tech players.

As the infrastructure of payments continues to evolve, innovation will move the

payments industry from a series of specific products to part of everything consumers do.
Differentiation will be driven by data, technology and delivery, changing the dynamics of
how and where we pay and receive payments. Payment innovation trends will occur in
conjunction with the Internet of Things (IoT), point of sale (POS), mobile wallets,
cryptocurrencies, and the blockchain.

Commitment to Phygital Delivery

With the high cost of a traditional branch network and the increasing number of
transactions moving to digital channels, more and more traditional financial services
companies are introducing digital-only banking entities. Some banks are launching
digital-only banks to collect deposits, while other financial firms are using digital
platforms to provide lending, investing and specialty services. In each instance, the
focus is on innovative customer experiences and increased value to the consumer,
supported by customer data and advanced analytics that can personalize engagement.
Phygital is a combination of physical and digital experience. Phygital’s objective is to
enable customers to walk into a branch and make use of basic automated services.

Auto Personalization

Banks will also use the power to personalize the offerings that users see on all
their devices. They will change the appearance of apps based on actual usage and will
make users feel more connected with banks and it will also set the stage for efficient
self-service. There will also be advancements in providing pre-filled data to users based
on their previous interaction history, preferences, and banking habits.

Blockchain

Blockchain is a growing list of records, called blocks, which are linked using
cryptography—the practice and study of techniques for secure communication using
codes. Blockchain has been used to reduce fraud, speed up contract enforcement, and
increase transparency. Since blockchain cannot be hacked — because of timestamps
that mark a data entry in its ledgers—banks will have to explore options to control the
power of blockchain to transform their backend operations. With the help of embedded
AI in backend operations of banks, they will also be able to quickly identify restricted
accesses in their operation workflows.

IV.B PORTER’S FIVE FORCES OF COMPETITIVE ANALYSIS

Rivalry of Competition: Strong

The pressure on the financial services industry is very strong. The rivalry among
the organizations intensifies the competition in the market. The several factors that
affect the competition are as follows:

 Products and service offerings

 Financial Stability
 Location
 Technology

Threat of New Entrants: Moderate

Since the implementation of the bank deregulation in the Philippines, it has been
easier for new entrants to position themselves in the industry. Because of the lower
minimum capital requirement, more firms have the freedom to compete with the existing
market. However, because of this, it is also a bigger threat for smaller firms, because
more stable firms can undercut their prices to minimize competition. While the works in
favor of the consumers, as the firms’ strategies to eliminate rivals have a positive impact
on buyer well being because of the decreased average industry prices and improved
services, it makes smaller banks more vulnerable. As one to the stable banks, China
Bank Corp is not so susceptible to the threat of new entrants as compared to other
players in the market. It is also a universal bank that performs both commercial and
investment functions, which gives it a competitive edge over its contemporaries.

Threat of Substitutes: Moderate

Banking is universal need required by individuals and firms alike, thus creating a
constant demand for its services. The implementation of the bank deregulation has
made it easier for firms to enter the industry, thus increasing competition. Because of
this, consumers are at advantage because of their high bargaining power – should they
be displeased with the performance or service of a firm, they can easily switch given the
relatively low prices and abundance of other options. This gives rise to a high threat of
substitutes for firms in the banking industry.

China Bank Corp, in particular, is susceptible to this threat, as are all financial
institutions. It is among the largest banks in the Philippines, and due to this, it is not as
vulnerable to the threat of substitutes as its smaller competitors, however it is only the
sixth largest, coming after BDO, Metrobank, BPI, Landbank, PNB, and thus still
susceptible to the threat of substitution.
Bargaining Power of Buyers: Strong

In relation to the above-mentioned threats, there is a high bargaining power from

the side of the buyers. As there is an abundance of banks offering services in the
market, buyers have multiple options at their disposal, forcing the firms to push their
service rates down. As the prices are low, the switching cost are also low. This, in
addition to the number of competitors, empowers customers to bargain.

Bargaining Power of Supplier: Strong

Unlike manufacturing and trade industries, service-oriented firms rely primarily on

homegrown skills. Instead of depending on a third party to provide them with raw
materials or inventories to buy and sell, they utilize human capital. Because of this,
there is a low supplier bargaining power. While training is a cost that is must incur,
China Bank Corp can easily hire fresh talents well-versed in the skills required by the
tasks needed to be accomplished. And since there is an overflow of skilled human
capital in the Philippine market, China Bank Corp, as an employer, has an edge over
the talents, as it can dictate exactly how much it is willing to spend on labor, and the
recruits will still comply due to limited job opportunities.

IV. C INDUSTRY TRENDS

Accelerating Focus on Digital Transformation

The industry is witnessing a continued and aggressive focus on digitization and

the adoption of new and emerging technologies to bring in operational efficiencies,
enhance speed-to-market and deliver superior customer experiences.

Banks are cutting down spends on branches 3 to invest in self-service digital
channels as mobile and online banking become more popular among customers. Digital
wearable devices, which pack the power of smartphones, are making it increasingly
feasible for banks to offer targeted services to customers.

Emergence of FinTech Companies

Many banks are seeking to exploit the opportunities presented by digital, either
by leveraging the technologies in-house or by partnering with FinTech companies.
Initially, these companies were seen as competitors taking advantage of the void that
was created by the BFS industry's inability to keep up with technological breakthroughs.
However, today, bank-FinTech partnerships are increasingly the norm, with the latter
providing marketing, administration, loan servicing or other services enabling banks to
offer tech-enabled banking products. Banks are also discovering some other
advantages of bank-FinTech partnerships, including access to assets and customers.
As a result, these partnerships are beginning to re-shape the financial services
landscape.
IV.D PROBLEMS IN THE INDUSTRY

Customer Retention

Financial services customers expect personalized and meaningful experiences

through simple and intuitive interfaces on any device, anywhere, and at any time.
Although customer experience can be hard to quantify, customer turnover is tangible
and customer loyalty is quickly becoming an endangered concept. Customer loyalty is a
product of rich client relationships that begin with knowing the customer and their
expectations, as well as implementing an ongoing client-centric approach.

Outdated Mobile Experiences

These days, every bank or credit union has its own branded mobile application
— however, just because an organization has a mobile banking strategy doesn’t mean
that it’s being leveraged as effectively as possible. A bank’s mobile experience needs to
be fast, easy to use, fully featured (think live chat, voice-enabled digital assistance, and
the like), secure, and regularly updated in order to keep customers satisfied. Some
banks have even started to reimagine what a banking app could be by
introducing mobile payment functionality that enables customers to treat their smart
phones like secure digital wallets and instantly transfer money to family and friends.
Having mobile-friendly banking experiences, coupled with applications that aid the
consumers financial life will be strategically paramount for banks to retain their current
customers, and attract new ones. A mobile strategy is no longer a nice to have for
banks – It is now a necessity for those who hope to remain competitive for years to
come.

Security and Authentication

Security and authentication will become significant strategic challenges as

consumers continue to adopt the mobile ecosystem for their banking needs. Banks will
have to take a closer look at how they confirm the identities of their customers who are
accessing their accounts remotely. With security breaches and identity theft on the rise,
the protection and security of banking information is paramount to instilling trust in the
minds of consumers, so banks will have to devise strategic plans accordingly to ensure
the safety of all their customers’ financial data.

Investor expectations

Despite all of the news about banking profits, banks and other financial
institutions are not meeting their shareholders’ expectations for return on investment or
equity. Part of the reason for this is the lack of accurately understanding customer
expectations, which translate into lower customer enrollment and retention rates.
Increasing competition from financial technology companies
 Financial technology (FinTech) companies are usually start-up companies based
on using software to provide financial services. The increasing popularity of FinTech
companies is disrupting the way traditional banking has been done. This creates a big
challenge for traditional banks because they are not able to adjust quickly to the
changes – not just in technology, but also in operations, culture, and other facets of the
industry.

IV.E CRITICAL SUCCESS FACTORS IN THE INDUSTRY

CSF 1: Manpower

Employees are one of the important assets of the company. HR Department

must provide better salary and benefits package, create programs that can help the
employees increase their engagement towards work and come up with the best strategy
for effective hiring process in order to fill the vacancies of the branches.

CSF 2: Location of Branches and ATMs

Another factor that is important in the banking industry is the location of

branches. Additional branches from different locations especially in provinces and
renovations of old branches must be prioritized. Furthermore, features and quantity of
ATMs on different locations must be improved.

CSF 3: Technology

One of the most important success factor of a bank’s efficiency is technology.

Many banks today put a lot of efforts and resources in improving their system. The
company’s IT Department must enhance and adopt more advance system for its
facilities particularly on online and mobile banking, queuing system and banking
solutions in order to compete in the industry.

CSF 4: Services and Products Offered

Another critical success factor to consider is the products and services offered.
Most banks today offer a wide range variety of products and provide better services to
its clients. The company must create products that can compete at par and enhance the
quality of customer satisfaction by offering secured and reliable customer service.

CSF 5: Financial Stability

Financial Stability is another important factor especially in financial institutions.

Good financial position in the industry can attract more potential clients and it also
shows how effective and efficient a company was.
IV.F COMPETITIVE PROFILE MATRIX
Critical Success Factors Weight ChinaBank RCBC Security
Bank
Rating Score Rating Score Rating Score
1. Manpower 20% 2 .40 3 .60 4 .80

2. Location 15% 4 .60 3 .45 2 .30

3. Technology 20% 3 .60 2 .40 3 .60

4. Services/Products 25% 3 .75 3 .75 4 1.0

Offered

5. Financial Stability 20% 2 .40 3 .60 4 .80

Total 100% 2.75 2.80 3.5

RANK 3rd 2nd 1st

IV.G EXTERNAL FACTOR EVALUATION

Opportunities Source Importance/ Responsive- Weighted

 Weight ness Rating Score
1. High level of Social/Cultural 5 2 0.10
awareness on saving

2. Bank starting to Technological 20 4 0.80

migrate into digital
banking

3. Emerging Social 10 1 0.10

microfinance
segment

Threats

1. High competition on Industry 15 3 0.45

the industry Analysis

2. Global financial crisis Economic 10 2 0.20

3. Fraudulent Technological 20 2 0.40

transactions and
system hacking

4. Policies implemented Political/ Legal 20 4 0.80

by BSP and AMLC
that affects the bank
and its clients

Total 100 2.85

V. COMPANY ANALYSIS

V.A Company’s Pricing and Cost Structure

China Bank has the lowest initial and maintaining balance from its commercial
bank competitors. Maintaining balance for savings account is P 2,000 and Passbook
and Checking Account is P 5,000.

V.B Company’s Operating Efficiencies

China Bank offers a comprehensive suite of products and services through its
620 branches complemented by convenient and secure electronic banking channels
which are available 24/7 — 966 ATMs, Cash Accept Machine, China Bank TellerPhone
(phone banking), China Bank Online, and China Bank Mobile App. The company is
ranked 6th in the Bangko Sentral ng Pilipinas (BSP) report as to Total Assets amounting
to Php812,839.32 (in Million Peso).
V.C Company Financial Ratio Analysis (Combined with industry ratios)

The following section is a discussion of the financial ratios of China Bank and the
two other competitors such as Security Bank and RCBC for the period 2016 to 2018.

Liquidity Ratios

Table 1: China Banking Corporation

TYPE 2016 2017 2018

Liquid Assets to Total Assete 34 36 38

Loans (net)-to-Deposit Ratio 71 71 70

China Bank‘s liquidity ratio (the ratio of liquid assets to total assets) was higher at 38%
from 36% in 2017 and 34% in 2016 due to the build-up in investment securities.

Table 2: Rizal Commercial Banking Corporation

TYPE 2016 2017 2018

Liquid Assets to Total Assete - - -

Loans (net)-to-Deposit Ratio - - -

Table 3: Security Bank Corporation

TYPE 2016 2017 2018

Liquid assets to total assets 53.05 44.88 43.84

Solvency Ratios

Table 1: China Banking Corporation

 TYPE 2016 2017 2018

Debt to equity ratio 9.0 8.0 8.9

Asset to equity ratio 10.0 9.0 9.9

Interest rate coverage ratio 2.5 2.3 1.9

China Bank’s Debt-to-equity ratio for the year was computed at 8.9, higher than 8.0 in
2017, while asset-to-equity ratio was recorded at 9.9 versus 9.0 in 2017 but slightly
lower than 10.0 in 2016. Interest rate coverage ratio for 2018 stood at 1.9 as against 2.3
for full-year 2017 and 2.5 for full-year 2016.

Table 2: Rizal Commercial Banking Corporation

TYPE 2016 2017 2018

Debt to equity ratio 7.39 7.27 7.39

Asset to equity ratio 8.39 8.27 7.94

Interest rate coverage ratio 1.50 1.73 1.50

Table 3: Security Bank Corporation

TYPE 2016 2017 2018

Debt to equity ratio - - -

Asset to equity ratio - - -

Interest rate coverage ratio - - -

Asset Quality Ratios

Table 1: China Banking Corporation

 TYPE 2016 2017 2018

Gross non-performing loans ratio 1.9 1.4 1.2

Non-performing loan cover 91 99 167

China Bank’s Gross NPL ratio significantly dropped to 1.2% from 1.4% in 2017 and
1.9% in 2016 due to remedial and clean-up efforts of lending units. Meanwhile,
consolidated loan loss coverage ratio widened to 167% from 99% in 2017 and 91% in
2016 while the Parent Bank‘s was at 323% as of December 2018.

Table 2: Rizal Commercial Banking Corporation

TYPE 2016 2017 2018

Gross non-performing loans ratio - - -

Non-performing loan cover - - -

Table 3: Security Bank Corporation

TYPE 2016 2017 2018

Gross non-performing loans ratio 0.17 0.02 0.41

Non-performing loan cover 203.93 239.37 110.90

Capitalization Ratio

Table 1: China Banking Corporation

TYPE 2016 2017 2018

Capital adequacy ratio - - -

CET 1/TIER 1 11.30 13.47 12.16

Total CAR 12.21 14.22 13.09

China Bank‘s CET 1 / Tier 1 CAR and Total CAR ratios were registered at 12.16% and
13.09%, respectively. The Bank‘s capital is largely comprised of CET 1 / Tier 1 (core)
capital.
Table 2: Rizal Commercial Banking Corporation

TYPE 2016 2017 2018

Capital adequacy ratio - - -

CET 1/TIER 1 - - -

Total CAR - - -

Table 3: Security Bank Corporation

TYPE 2016 2017 2018

Capital to risk assets ratio 20.53 18.66 18.70

Profitability Ratios

Table 1: China Banking Corporation

TYPE 2016 2017 2018

Return on Assets 1.16 1.12 1.04

Return on Equity 10.42 10.01 9.54

Net Interest Margin 3.20 3.11 3.10

Cost-in-Income Ratio 61 62 63

CHIB‘s net income of P8.1 billion resulted in a 9.54% ROE and 1.04% ROA given
improved operating income. Cost-to-income ratio was slightly higher at 63% from 62%
and 61% in 2016 as the Bank continued its expansion program and technology
upgrade. Net interest margin dropped to 3.10% from 3.11% as the increase in interest
revenues was offset by higher funding cost.

Table 2. Rizal Commercial Banking Corporation

TYPE 2016 2017 2018

Return on Assets 0.77 0.82 0.73

Return on Equity 6.42 6.72 5.78

Net Interest Margin 4.06 4.25 4.00

Profit Margin 16.95 17.15 16.31

Table 3: Security Bank Corporation

TYPE 2016 2017 2018

Return on Average Equity 10.07 10.12 8.07

Net Interest Margin 3.12 3.20 3.27

Cost-in-Income Ratio 50.20 49.76 53.67

V.D INTERNAL FACTOR EVALUATION

Strengths Source Importance Responsive- Weighted

/ Weight ness Rating Score
 1. Good Social 15 4 0.60
Image/Reputation/No
negative news

2. Escalating Financial/ 20 3 0.60

performance and Accounting
reliable financial
position in terms of
assets and
capitalization

3. Preferred bank by Social/Cultural 10 4 0.80

Filipino-Chinese
businessman

Weakness
1. Poor Management 20 2 0.40
Technology/System Information
Systems
(MIS)/
Technological

2. Lack of manpower Human 15 2 0.30

Resource
Management

3. Lack of promotional Marketing 5 2 0.10

campaigns

4. Limited variety of Production/ 15 2 0.30

products offered Operation
compare to its
competitors

Total 100 3.10

VI. STRATEGY FORMULATION

VI.A Recommended Revised Vision and Mission Statement

China Bank’s Vision Statement

China Bank currently remains to the following vision in relation to its operations:

“Drawing strength from our rich history, we will be the best, most
admired, and innovative financial services institution, partnering with our
customers, employees, and shareholders in wealth and value creation.”

China Bank’s vision signifies that the company wants to be the best and most
admired financial services institution. It also indicates the concern of the institution to its
stakeholders by associating with them through innovativeness and value creation.
However, the vision statement does not give a clear indication as to when it will achieve
its goal, making it a room for improvement for a more goal oriented vision for the
company.

Table 1. Vision Statement Evaluation Table

Parameter Yes/No Why

Does it clearly answer the Yes It is stated that it wants

question: What do we to be the best, most
want to become? admired and innovative
financial institution.

Is it concise enough yet Yes It is concise and

inspirational? inspirational because it is
not merely focused to the
bank itself but also to its
stakeholders.

Is it aspirational? Yes The strong desire to

achieve the stated
goal/vision is strongly
communicated through
the two words “will be.”

Does it give clear No There are no words

indication as to when it suggesting as to when
should be attained? the vision stated will be
realized or
accomplished.

China Bank’s Mission

 China Bank’s statement of mission discusses the institution’s rationale for its
existence. It is stated as follows:

“We will be a leading provider of quality services consistently delivered to

institutions, entrepreneurs, and individuals here and abroad, to meet their
financial needs and exceed their rising expectations.

We will be a primary catalyst in the creation of wealth for our customers, driven
by a desire to help them succeed, through a highly engaged team of competent
and empowered professionals, guided by in-depth knowledge of their needs and
supported by leading-edge technology.

We will maintain the highest ethical standards, sense of responsibility, and

fairness with respect to our customers, employees, shareholders, and the
communities we serve.”

Through an in-depth analysis and evaluation of the mission statement, it can be

portrayed that China Bank covers all the factors that are vital in an organization’s
operation.

Table 2. Mission Statement Evaluation Table

 Parameter Yes / No If yes, which part of the
statement

1. Customers Yes We will be a leading

provider…

2. Products & services Yes … creation of wealth… and

…highly engaged team…
guided by in-depth
knowledge…supported by
leading-edge technology

3. Markets Yes …institutions,

entrepreneurs, and
individuals here and abroad

4. Technology Yes …leading-edge technology

5. Concern for survival, Yes …meet their financial needs

growth, profitability and exceed their rising
expectations.
We will be a primary
catalyst in the creation of
wealth…desire to help them
succeed…

6. Philosophy Yes We will maintain the highest

ethical standards, sense of
responsibility, and
fairness…

7. Self-concept Yes We will…

8. Concern for employees Yes …respect to our

employees…

9. Concern for nation building Yes …the communities we

serve.

Communicating Vision and Mission Statements to Employees

 Every organization, whether big or small, should always ensure that the
employees as well as the other stakeholders have a deep understanding of the vision
and mission statement of the company. These statements serve as guide for the
employees to contribute in the achievement of the organization’s desire for success not
only for the company but to others also. Proper communication of vision and mission
statements to employees will boost productivity, efficiency and morale of the
employees. The following strategies are hereby recommended to reinforce within China
Bank:

 Internal Promotions

The vision and mission statements are usually seen hanging in frames in
areas where employees and customers usually pass through. This strategy,
however, is usually a form of an external communication which plays an
important role as it is a way of informing the public of the goals of the
organization. However, the promotion of these statements internally must also
be given equal importance in order to reinforce these objectives and avoid
irreversible effects on employees. Internal promotions could be done through
branding, using these statements in communications such as email and
memoranda, promoted during organizational meetings, and displaying not just in
the lobby but also in working areas.

 Vision and Mission Driven Priorities.

The priorities of the company should be driven by its vision and mission
statements. Thus, it is expected that all organizational decisions made should be
in accordance with its mission statement. These shall be reflected in the
company’s decisions on budget allocations, type of programs and projects
implemented, hiring and promotion decisions, and the senior management
team’s management focus.

 360 Degree Feedback System.

An important factor in the achievement of goals stated in the

organization’s vision and mission statements is the connection it forms with its
employees. Individual employees’ goals must be aligned to that of the
organizations and in order to measure this, key officers and members of the
upper management team of the company must be regularly evaluated in terms of
their commitment to the company’s mission statements. Moreover, to ensure
that these statements are understood and practiced down to the lowest level of
the organization, employee surveys must be conducted to check on individual
and organizational goal alignment.

VI.B RECOMMENDED STRATEGIES

Product and Service Development

 Automated Teller Machine (ATM) with deposit services

 Statement of Accounts (SOA) can be accessed on websites by its stakeholders
with authorization
 Queuing System should be improved
 Mobile Banking application should be enhanced

Market Development

 Launch cash cards for non-clients

 KIP (kids Investment Plan) Plan should be developed

Market Penetration

 Augmented promotions (TV and Radio Ads, sponsorships, posters and flyers)