If you are in any doubt about this Offering Circular, you should consult representatives of the Selling Agents such as a sales

professional or bank manager, or a professional accountant or other professional adviser.

FINAL OFFERING CIRCULAR STRICTLY CONFIDENTIAL 29 APRIL 2009

RIZAL COMMERCIAL BANKING CORPORATION (A BANKING CORPORATION ORGANIZED AND EXISTING UNDER PHILIPPINE LAWS)

P4,000,000,000 UNSECURED SUBORDINATED NOTES

ELIGIBLE AS LOWER TIER 2 CAPITAL DUE 2019

CALLABLE WITH STEP-UP IN 2014

ISSUE PRICE 100.0% OF FACE VALUE

Rizal Commercial Banking Corporation, (the “Bank”) is offering P4,000,000,000 worth of Unsecured Subordinated Notes Eligible as Lower Tier 2

Capital due 2019, callable with step-up in 2014 (the “Notes”) pursuant to the authority granted by the Bangko Sentral ng Pilipinas (“BSP”) to the

Bank on 2 April 2009 and BSP Circular No. 280 (2001) and 503 (2005), as amended from time to time.

The Notes will bear interest at the rate of 7.75% per annum from and including 15 May 2009 to but excluding 15 May 2014 and interest will be

payable quarterly in arrears at the end of each Interest Period on 15 August, 15 November, 15 February and 15 May, commencing on 15 August

2009. Unless the Notes are earlier redeemed on 16 May 2014 (the “Optional Redemption Date”), the applicable interest rate from and including

15 May 2014 to but excluding 15 May 2019 (the “Maturity Date”) will be increased to the rate equal to (80% x Benchmark Rate as of the first day

of the 21st Interest Period) plus the Step-Up Spread (the “Step-Up Interest Rate”) and such Step-Up Interest Rate shall be payable quarterly in

arrears at the end of each Interest Period on 15 August, 15 November, 15 February and 15 May except for the last Interest Period which will end

on the Maturity Date.

Unless previously redeemed, the Notes will be redeemed at their principal amount on the Maturity Date or 15 May 2019. Subject to the

satisfaction of certain regulatory approval requirements, the Bank may redeem the Notes in whole and not only in part on the Optional

Redemption Date at the face value of the Notes, plus accrued and unpaid interest as of but excluding the Optional Redemption Date. The Notes

will constitute direct, unconditional, unsecured and subordinated obligations of the Bank, and will, at all times, rank pari passu and without any

preference among themselves and at least equally with all other present and future unsecured and subordinated obligations of the Bank, except

obligations mandatorily preferred by law. See Terms and Conditions of the Notes – Status and Subordination.

The Notes cannot be terminated by any holder of the Notes (the “Noteholder”) before the Maturity Date. Transfers or assignments, however, shall

not be considered pre-terminations.

The Notes are not deposits. The Notes are not insured by the Philippine Deposit Insurance Corporation and are not guaranteed by the

Bank, any person related to the Bank, or any person whatsoever.

The Notes will be issued in scripless form in denominations of P500,000.00 and integral multiples of P100,000.00 thereafter and will be registered

and lodged with the Registrar and Paying Agent in the name of the Noteholders. The Notes will be represented by the Master Note deposited with

the Public Trustee (with copy to the Registrar). The Electronic Registry Book (the “Registry Book”) shall serve as the best evidence of ownership

with respect to the Notes. However, a written advice will be issued by the Registrar to the Noteholders to confirm the registration of the Notes in

their name in the Registry Book, including the amount and summary terms and conditions of such Notes in accordance with the regulations of the

BSP (“Registry Confirmations”). Once registered and lodged, the Notes will be eligible for transfer or assignment through the Market Maker by

electronic book-entry transfers in the Registry Book, cancellation of the Registry Confirmations of transferor Noteholders and issuance of Registry

Confirmations in favor of transferee Noteholders. It is also intended that the Notes will be listed in the trading platform of the Philippine Dealing

and Exchange Corp. (“PDEx”). In the event of such listing of the Notes in the PDEx, the services of the Market Maker shall cease and secondary

trading on the Notes would henceforth be conducted in the PDEx in accordance with the rules and regulations of PDEx. See Terms and

Conditions of the Notes – Secondary Trading.

The Bank has a Bank Financial Strength Rating of E+ and a Senior Unsecured Debt Rating of Ba3 from Moody’s Investor Services. The Notes

are not rated. Such a rating would relate to the timely payment of interest on the Notes and the full payment of the principal amount of the Notes

on or before 15 May 2019. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or

withdrawal at any time by the rating agency concerned.

INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE “INVESTMENT CONSIDERATIONS” FOR A DISCUSSION OF

CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.

ARRANGER, SELLING AGENT and MARKET MAKER

i

The date of this Offering Circular is 29 April 2009.

This Offering Circular has been prepared solely for the information of persons to whom it is transmitted by

Standard Chartered Bank (“SCB”), as Arranger and Selling Agent, or the Bank, in its capacity as Selling

Agent, with respect to the Notes to be issued by the Bank. This Offering Circular shall not be reproduced in

any form, in whole or in part, for any purpose whatsoever nor shall it be transmitted to any other person.

The Bank confirms that this Offering Circular contains all information with respect to the Bank and its

subsidiaries (collectively, the “Group”) and the Notes which is material in the context of the issue and

offering of the Notes, that the information contained herein is true and accurate in all material respects and

is not misleading, that the opinions and intentions expressed herein are honestly held and have been

reached after considering all relevant circumstances and are based on reasonable assumptions, that there

are no other facts, the omission of which would, in the context of the issue and offering of the Notes, make

this document as a whole or any such information or the expression of any such opinions or intentions

misleading in any material respect, and that all reasonable enquiries have been made by the Bank to verify

the accuracy of such information. The Bank accepts responsibility accordingly.

In making an investment decision, the prospective Noteholder must rely on its own examination of the Bank

and the terms of the offering of the Notes, including the merits and risks involved. By receiving this Offering

Circular, the prospective Noteholder acknowledges that (i) it has not relied on the Arranger or any of the

Selling Agents or any person affiliated with them in connection with its investigation of the accuracy of any

information in this Offering Circular or its investment decision, and (ii) no person has been authorized to

give any information or to make any representation concerning the Bank, the Group or the Notes other than

as contained in this Offering Circular and, if given or made, any such other information or representation

should not be relied upon as having been authorized by the Bank, the Arranger or Selling Agents.

No representation or warranty, express or implied, is made by the Arranger and Selling Agents as to the

accuracy or completeness of the information contained in this Offering Circular. Neither the delivery of this

Offering Circular nor the offer of the Notes shall, under any circumstances, constitute a representation or

create any implication that there has been no change in the affairs of the Bank or the Group since the date

of this Offering Circular or that any information contained herein is correct as at any date subsequent to the

date hereof. The Arranger and Selling Agents expressly do not undertake to update the contents of this

Offering Circular.

None of the Bank, the Arranger or the Selling Agents or any of their respective affiliates or representatives

is making any representation to any Noteholder regarding the legality of an investment by such Noteholder

under applicable laws. In addition, the Noteholder should not construe the contents of this Offering Circular

as legal, business or tax advice. The Noteholder should be aware that it may be required to bear the

financial risks of an investment in the Notes for an indefinite period. The Noteholder should consult with its

own advisers as to the legal, tax, business, financial and related aspects of a purchase of the Notes.

This Offering Circular does not constitute an offer to sell, or an invitation by or on behalf of the Bank, the

Arranger or Selling Agents or any of their respective affiliates or representatives to purchase any of the

Notes, and may not be used for the purpose of an offer to, or a solicitation by, anyone, in each case, in any

jurisdiction or in any circumstances in which such offer or solicitation is not authorized or is unlawful.

Recipients of this Offering Circular are required to inform themselves about and observe any applicable

restrictions.

Each Noteholder must comply with all applicable laws and regulations in force in each jurisdiction in which

it purchases, offers or sells such Notes or possesses or distributes this Offering Circular and must obtain

ii

any consent, approval or permission required by it for the purchase, offer or sale by it of such Notes under

the laws and regulations in force in any jurisdictions to which it is subject or in which it makes such

purchases, offers or sales and the Bank, Arranger or Selling Agents shall have no responsibility therefor.

Conventions

In this Offering Circular, unless otherwise specified or the context otherwise requires, all references to the

“Philippines” are references to the Republic of the Philippines. All references to the “Government” herein

are references to the Government of the Philippines. All references to “United States” or “U.S.” herein are

to the United States of America. Unless otherwise specified or the context otherwise requires, references

herein to “U.S. dollars” and “U.S.$” are to the lawful currency of the United States of America and

references herein to “Pesos” and “P” are to the lawful currency of the Republic of the Philippines. Certain

monetary amounts and currency translations included in this document have been subject to rounding

adjustments; accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of

the figures, which precede them. References in this document to ownership interests are, save as

otherwise disclosed, as at the date of this document.

Forward-looking Statements

All statements contained in this Offering Circular that are not statements of historical fact constitute

“forward-looking statements”. Some of these statements can be identified by forward-looking terms, such

as “anticipate”, “believe”, “can”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “will” and “would” or

similar words. However, these words are not the exclusive means of identifying forward-looking statements.

All statements regarding the Group’s expected financial condition and results of operations, business, plans

and prospects are forward-looking statements. These forward-looking statements include statements as to

the Group’s business strategy, revenue and profitability, planned projects and other matters discussed in

this Offering Circular regarding matters that are not historical fact. These forward-looking statements and

any other projections contained in this Offering Circular (whether made by the Bank or any third party)

involve known and unknown risks, uncertainties and other factors that may cause the Group’s actual

results, performance or achievements to be materially different from any future results, performance or

achievements expressed or implied by such forward-looking statements or other projections.

TABLE OF CONTENTS

OFFERING CIRCULAR SUMMARY ...................................................................................................................... 1

SELECTED FINANCIAL INFORMATION ............................................................................................................ 10

INVESTMENT CONSIDERATIONS...................................................................................................................... 13

TERMS AND CONDITIONS OF THE NOTES...................................................................................................... 29

PURPOSE OF ISSUANCE ................................................................................................................................... 47

CAPITALIZATION ................................................................................................................................................ 48

DESCRIPTION OF THE BANK ............................................................................................................................ 49

PHILIPPINE TAXATION..................................................................................................................................... 116

PHILIPPINE BANKING INDUSTRY ................................................................................................................... 121

BANKING REGULATION AND SUPERVISION................................................................................................. 123

PROCEDURE ..................................................................................................................................................... 131

FINANCIAL STATEMENTS

Report of Independent Auditors

Consolidated Statements of Condition

Consolidated Income Statements

Consolidated Statements of Changes in Capital Funds

Consolidated Cash Flows Statements

Notes to Consolidated Financial Statements

1

OFFERING CIRCULAR SUMMARY

This summary highlights information contained elsewhere in this Offering Circular. This summary is qualified by, and

must be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this

Offering Circular. Each prospective Noteholder is recommended to read this entire Offering Circular carefully, including

the Bank's consolidated financial statements and related notes (the “Financial Statements”) and “Investment

Considerations”.

DESCRIPTION OF THE BANK

Rizal Commercial Banking Corporation (the “Bank”) is a universal bank which provides a wide range of

banking and other financial products and services, including commercial and retail banking, credit cards,

asset management and treasury and investment banking products and services. These services include

traditional loan and deposit products, as well as treasury, trust banking, investment banking, private

banking, cash management, leasing and finance, remittance, insurance, retail cash cards and credit card

services. As of 31 December 2008, the Bank was the fourth largest capitalized private universal bank in the

Philippines. In terms of branches, the Bank, excluding the Government-owned and foreign banks, ranked

fourth in the Philippines, with a country-wide total of 324 branches as of 31 December 2008.

The Bank, incorporated under the name Rizal Development Bank, began operations as a private

development bank in the province of Rizal in 1960. In 1963, the Bank received approval from the then

Central Bank of the Philippines, now the Bangko Sentral ng Pilipinas (“BSP”) to operate as a commercial

bank and thus began operations under its present name. In 1973, the Bank formed alliances with two

foreign banks, Continental Illinois National Bank (“Conill”) and United Financial of Japan (“UFJ”), then

known as Sanwa Bank. The relationship with Continental Illinois ended in 1985 after it sold its shareholding

in the Bank to UFJ. In December 2006, UFJ (which, after its merger in 2004 with Mitsubishi Tokyo Financial

Group, became known as The Bank of Tokyo-Mitsubishi UFJ Limited) disposed of its entire shareholdings

in the Bank, with the majority being sold to Spinnaker Global Strategic Fund Ltd. and Spinnaker Global

Emerging Markets Fund Ltd. (together, “Spinnaker”). As of 31 December 2008, the Yuchengco group,

primarily through a holding company, the Pan Malayan Management and Investment Corporation (“Pan

Malayan”) owned approximately 42.0% of the Bank’s outstanding shares. In addition, as of such date,

others members of the Yuchengco Group of Companies (“YGC”) owned or controlled an additional 11.5%

of the Bank’s issued and outstanding common shares and Spinnaker owned 16% of the Bank’s outstanding

common shares. In the early part of 2009, Spinnaker Group sold its entire stake in the Bank. The equity

interest was primarily bought back by the Bank to have the flexibility to look for a strategic investor that

agreed with the Bank’s current business direction.

As of 31 December 2008, the Bank’s consolidated total assets and capital funds before minority interests

amounted to P268.3 billion and P27.7 billion, respectively. The Bank’s net income attributable to parent

company shareholders for the period ending 31 December 2008 amounted to P2.2 billion. As of 31

December 2008, the Bank had a market capitalization on the Philippine Stock Exchange (“PSE”) of P9.44

billion. The Bank’s Tier 1 capital adequacy ratio and total capital adequacy ratio were 13.19% and 17.30%,

respectively, as of 31 December 2008.

The Bank offers commercial, corporate and consumer banking products and services throughout the

Philippines, as well as treasury, cash management and remittance services.

The Bank’s Retail Banking Group (“RBG”) currently account for a significant portion of the Bank’s income

being the largest contributor to its net income for the period ended 31 December 2008. The Bank’s Retail

Banking Group provides a range of banking products and services mainly sold through the Bank’s branch

2

network. These include deposit products, cash management solutions, investments including trust

products, and bancassurance. Aside from managing the Bank’s branches, RBG also manages the Bank’s

nationwide ATM network.

The Bank’s corporate banking practice focuses particularly on international corporate clients in special

economic zones, Japanese and Filipino-Chinese businesses and leading Philippine and multinational

corporations. Through its current affiliation with YGC and past affiliation with UFJ, it has established long-

standing relationships with Japanese companies in special economic zones within the Philippines, as well

as Chinese and international companies.

The Bank also provides a full range of consumer banking products and services in the Philippines, primarily

through its subsidiary, RCBC Savings Bank, Inc. (“RSB”).

The Bank’s international operations consist of its wholly-owned subsidiaries, RCBC North America, Inc.

(formerly RCBC California International Inc.) (“RCBC North America”) and RCBC TeleMoney Europe SpA

(“RCBC Telemoney Europe”) in the United States and Italy, respectively, and its majority-owned subsidiary

RCBC International Finance Ltd. (“RCBC IFL”) and its subsidiary RCBC Investments, Ltd. (“RCBC

Investments”) in Hong Kong. The Bank’s relationship with other banks, exchanges and other international

money transfer agencies has strengthened its remittance business used primarily by overseas Filipino

workers (“OFWs”). The Bank estimates it had an approximate 10.0% share of the remittance business in

the Philippines as of 31 December 2008, and 9.4% as of 30 December 2007, based on remittance volumes

published by the BSP.

The Bank has allocated resources and investments in technology focused on providing better services for

the banking needs of its clients. It is critical to this strategy not just to keep pace with evolving customer

expectations but to anticipate their future needs, given the fast pace of technological advancement.

3

STRATEGY

The Bank aims to continue its growth in the core business lines through its superior execution abilities,

customer service initiatives and expanded distribution platforms. The key elements of the Bank's strategy

are as follows:

• Increase profitability from existing businesses while building a diversified franchise;

• Further expand the Bank’s existing branch network while enhancing the effectiveness of the

distribution network through the introduction of more electronic channels;

• Invest in technology;

• Invest in people;

• Expand focus on providing services to non-resident Filipinos;

• Accelerate disposition of non-performing assets (“NPAs”); and

• Where suitable opportunities arise, pursue a prudent acquisition strategy.

COMPETITIVE STRENGTHS

The Bank aims to leverage its strategies by its principal competitive strengths, as follows:

• Sustainable size in a consolidating market, with an established operating history;

• Leading positions in key products;

• Strong group synergies and support;

• Proven and experienced management team; and

• Extensive and strategically located banking infrastructure and branch network.

THE OFFER

SCB, in its capacity as Arranger has agreed with the Bank, subject to the satisfaction of certain conditions,

to distribute and sell the Notes at the Issue Price in consideration for certain fees and expenses. The

Arranger will offer the Notes to selected prospective Noteholders.

The distribution and sale of the Notes to prospective Noteholders shall be undertaken by the Arranger and

the Selling Agents for the issue. Nothing herein shall limit the right of the Arranger to purchase the Notes

for its own account. The Arranger may, from time to time, engage in transactions with and perform services

for the Bank or its shareholders or affiliates in the ordinary course of its business.

The following is a general summary of the terms of the Notes. This summary is derived from and should be

read in conjunction with the full text of the Terms and Conditions of the Notes (the “Terms and Conditions”).

The Terms and Conditions shall prevail in the event of any inconsistency with the terms set out in this

section.

4

ISSUER Rizal Commercial Banking Corporation (the “Bank”)

NOTES OFFERED P4,000,000,000 Fixed Rate Unsecured Subordinated Notes

DENOMINATION Minimum denominations of P500,000.00 and in integral multiples of

P100,000.00 thereafter

ISSUE PRICE 100% of the nominal principal amount of the Notes

INTEREST RATE Fixed rate of 7.75% per annum, being the rate equal to the Benchmark

Rate on Pricing Date plus a margin payable to the Noteholder for the period

from and including the Issue Date up to but excluding the last day of the

20th Interest Period (if the Redemption Option is not exercised) or up to but

excluding the Optional Redemption Date (if the Redemption Option is

exercised)

STEP-UP INTEREST

RATE

Means (80% x Benchmark Rate as of the Banking Day immediately prior to

the first day of the twenty-first (21st) Interest Period) plus the Step-Up

Spread, payable to Noteholders in lieu of the Interest Rate beginning on the

twenty first (21st) Interest Period up to the last Interest Period in the event

the Issuer does not exercise its Redemption Option

The Step-Up Spread is equal to 150% x (Interest Rate less 80% of the

Benchmark Rate as at the Pricing Date), equivalent to 3.7925%

ISSUE DATE 15 May 2009

MATURITY DATE The end of ten (10) years from the Issue Date or on 15 May 2019;

Provided, that, if such date is declared to be a non-Business Day, the

Maturity Date shall be the next succeeding Business Day

OPTIONAL REDEMPTION

DATE

The first Banking Day of the twenty-first (21st) Interest Period, which is on

16 May 2014, on which date the Bank may exercise its option to redeem

the Notes subject to the Terms and Conditions and the Governing

Regulations

OFFER PERIOD Commencing at 10:00 a.m. on 29 April 2009 and ending at 5:00 p.m. on 12

May 2009 or such earlier day or later day as may be determined by the

Bank and the Arranger

THE FOREGOING NOTWITHSTANDING, THE DEADLINE FOR THE

SUBMISSION OF THE DULY EXECUTED APPLICATIONS TO

PURCHASE TO THE SELLING AGENTS MAY BE MOVED TO AN

EARLIER DATE AT THE SOLE AND ABSOLUTE DISCRETION OF THE

ARRANGER WITHOUT PRIOR NOTICE

FORM The Notes shall be scripless and, subject to the payment of fees to the

Registrar, registered and lodged with the Registrar in the name of the

Noteholders. Once lodged, the Notes shall be eligible for electronic transfer

in the Registry Book, without the issuance or cancellation of Notes

5

INTEREST ACCRUAL The Notes will bear interest on its principal from and including the Issue

Date to but excluding the Optional Redemption Date at the stipulated

Interest Rate. In the event the Notes are not redeemed on the Optional

Redemption Date, the Notes will bear interest on its principal from and

including the first (1st) day of the twenty first (21st) Interest Period to, but

excluding the Maturity Date, at the stipulated Step-Up Interest Rate. In

such an event, interest at the Step-Up Interest Rate will be payable to the

Noteholders in lieu of the Interest Rate beginning the twenty first (21st)

Interest Period up to the last Interest Period.

The amount of interest payable in respect of the Notes for each Interest

Period shall be calculated by the Paying Agent on a 30/360-day year basis

with the first (1st) Interest Period having an odd coupon, imputing the

additional one (1) day in the computation.

INTEREST PERIODS The period commencing on the Issue Date and having a duration of three

(3) months and, thereafter, each successive three (3)-month period

commencing on the last day of the immediately preceding Interest Period

up to, but excluding the first day of the immediately succeeding Interest

Period, but in the case of the last Interest Period, it will be the period from

and including the last day of the immediately preceding Interest Period up

to, but excluding, the Maturity Date

INTEREST PAYMENT

DATE

The last day of an Interest Period when payment for interest in respect of

the Notes becomes due, as set out in these Terms and Conditions;

Provided, that, if any Interest Payment Date would otherwise fall on a day

which is not a Business Day, the Interest Payment Date shall be deemed

the next succeeding Business Day; Provided further, that if such

succeeding Business Day falls into the next calendar month, the Interest

Payment Date shall be the immediately preceding Business Day, in either

case, without adjustment to the amount of interest to be paid

PRINCIPAL REPAYMENT Unless the Notes are redeemed by the Bank on the Optional Redemption

Date or on such other date allowed under Early Redemption of the Notes,

the Notes shall be redeemed on the Maturity Date or on 15 May 2019 at

face value of the Notes, plus accrued interest covering the accrued and

unpaid interest as of but excluding the Maturity Date. If the Maturity Date

falls on a date that is not a Business Day, the Maturity Date shall fall on the

immediately succeeding Business Day, without adjustment to interest

payable in respect of the Notes

REDEMPTION OPTION

Subject to the satisfaction of certain regulatory approval requirements, the

Bank may redeem all (but not only part) of the Notes on the Optional

Redemption Date or on 16 May 2014 at face value of the Note, plus

accrued interest covering the accrued and unpaid interest as of but

excluding the Optional Redemption Date On the Optional Redemption

Date, upon (x) prior approval of the BSP, subject to the following

conditions: (i) the capital adequacy ratio of the Bank is at least equal to the

required minimum ratio; (ii) the Note is simultaneously replaced with the

issues of new capital which are neither smaller in size nor lower in quality

6

than the original issue (unless the Bank’s capital ratio remains more than

adequate after redemption); and (y) a thirty (30)-Banking Day prior written

notice to Noteholders on record.

If at any time within the first five (5) years after Issue Date of the Notes,

there occurs (a) a change in tax status of the Notes due to changes in tax

statutes and/or regulations, or (b) a determination by the BSP that the

Notes do not qualify as Lower Tier 2 capital of the Bank, the Bank may,

upon prior approval of the BSP and at least a thirty (30)-Banking Day prior

written notice to the Noteholders, redeem all and not less than all of the

Notes at the Issue Price plus accrued and unpaid interest.

NON-

PRETERMINABILITY

Presentation of the Notes to the Bank for termination or redemption before

the Maturity Date is not allowed, unless otherwise expressly provided in the

Terms and Conditions. Noteholders may, however, transfer or assign their

Notes to prospective Noteholders who are not Prohibited Noteholder. Such

transfer or assignment shall not be considered a pre-termination

PROHIBITED

NOTEHOLDERS

The following persons and entities shall be prohibited from purchasing

and/or holding any Notes of the Issuer: (1) subsidiaries and affiliates of the

Issuer, including the subsidiaries and affiliates of the Issuer's subsidiaries

and affiliates; or (2) unit investment trust funds managed by the Trust

Department of the Issuer, its subsidiaries, and affiliates, or other related

entities; or (3) other funds being managed by the Trust Department of the

Issuer, its subsidiaries and affiliates or other related entities where (a) the

fund owners have not given prior authority or instruction to the Trust

Department to purchase or invest in the Notes or (b) the authority or

instruction of the fund owner and his understanding of the risk involved in

purchasing or investing in the Notes are not fully documented. For

purposes hereof, an “affiliate” refers to a related entity linked by means of

ownership of at least 20.0% to not more than 50.0% of its outstanding

voting stock.

SECONDARY TRADING

All transfers or assignments of the Notes shall be coursed through the

Market Maker or other institutions authorized by the BSP or the Philippine

Dealing and Exchange Corporation (“PDEx”), upon the listing of the Notes

in PDEx after the Issue Date

The Issuer intends to list the Notes in PDEx for secondary market trading.

Upon listing of the Notes with PDEx, Noteholders shall course their

secondary market trades through the trading participants of PDEx for

execution in the PDEx Trading Platform in accordance with the PDEx

Trading Rules, Conventions and Guidelines, as these may be amended or

supplemented from time to time, and shall settle such trades on a Delivery

versus Payment (DvP) basis in accordance with PDEx Settlement Rules

and Guidelines. The secondary trading of Notes in PDEx may be subject to

such fees and charges of PDEx, the trading participants of PDEx, and other

providers necessary for the completion of such trades

QUALIFICATION

DETERMINATION

Each Selling Agent and Limited Selling Agent (in the case of initial issuance

of the Notes) and each Market Maker (in the case of secondary trading of

the Notes) shall verify the identity and other relevant details of each

7

investor and ascertain that the proposed holder or transferee of a Note is

not a Prohibited Noteholder. In the event that the Notes are listed on PDEx,

the obligation to verify the identity and other relevant details of each

investor and ascertain that the proposed holder or transferee of a Note is

not a Prohibited Noteholder shall be performed by the trading participants

of the PDEx. Final determination shall, however, rest with the Issuer.

The Noteholder shall immediately submit any and all information

reasonably required by the Selling Agents, Limited Selling Agents, and/or

Market Makers with respect to the qualification of the proposed holder or

transferee in order to determine that such Noteholder or transferee is not a

Prohibited Noteholder.

STATUS AND

SUBORDINATION

The Notes constitute direct, unconditional, unsecured, and

subordinated Peso-denominated obligations of the Bank, enforceable

in accordance with these Terms and Conditions. Claims of all the

Noteholders in respect of the Notes will at all times rank pari passu

without any preference among themselves. The Notes shall be at least

pari passu with all other present and future unsecured and

subordinated Peso-denominated obligations of the Bank that by their

terms rank equal with the Notes, except obligations mandatorily

preferred by law.

Claims of all Noteholders, however, enjoy priority over the rights and

claims of holders of all classes of equity securities of the Bank,

including holders of preference shares, if any. Noteholders or their

transferees shall not be allowed, and hereby waive their right, to set

off any amount that may be due the Bank against the Notes.

Upon any distribution to creditors of any assets of the Bank in the

event of any insolvency or liquidation of the Bank, the claims of

Noteholders for principal and interest in respect of the Notes shall be

subordinated in right of payment to claims (whether actual or

contingent, present or future) of all depositors and creditors of the

Bank, except those creditors that are expressly ranked equally with or

junior to the Noteholders in right of payment.

THE NOTES, LIKE OTHER SUBORDINATED INDEBTEDNESS OF THE

BANK, ARE SUBORDINATED TO THE CLAIMS OF DEPOSITORS AND

ORDINARY CREDITORS, ARE NOT A DEPOSIT, AND ARE NOT

GUARANTEED NOR INSURED BY THE BANK OR ANY PARTY

RELATED TO THE BANK, SUCH AS ITS SUBSIDIARIES AND

AFFILIATES, OR THE PHILIPPINE DEPOSIT INSURANCE

CORPORATION, OR ANY OTHER PERSON, AND ARE NOT COVERED

OR SECURED BY ANY ARRANGEMENT THAT LEGALLY OR

ECONOMICALLY ENHANCES THE PRIORITY OF THE CLAIM OF THE

NOTEHOLDER AS AGAINST DEPOSITORS AND OTHER CREDITORS

OF THE ISSUER.

The Notes shall not be used as collateral for any loan made by the

8

Bank or any of its subsidiaries or affiliates.

TAXATION If any payments of principal and/or interest under the Notes shall be subject

to deductions or withholdings for or on account of any present taxes,

duties, assessments, or governmental charges of whatever nature

imposed, levied, collected, withheld, or assessed by or within the

Philippines or any authority therein or thereof having the power to tax,

including but not limited to stamp, issue, registration, documentary, value-

added or similar tax, or other taxes, duties, assessments, or government

charges, including interest, surcharges, and penalties thereon (the

“Taxes”), then such Taxes shall be for the account of the Noteholder

concerned, and if the Bank shall be required by law or regulation to deduct

or withhold such Taxes, then the Bank shall make the necessary

withholding or deduction for the account of the Noteholder concerned;

provided, however, that all sums payable by the Bank to tax-exempt

persons shall be paid in full without deductions for Taxes or government

charges, subject to the submission by the relevant Noteholder claiming the

exemption of reasonable and acceptable evidence of such exemption to

the Registrar

In the event that (a) due to a change in tax status of the Notes because of

changes in tax statutes (and not merely a change in the interpretation of

present Tax statutes and regulations), any payments of principal and/or

interest under the Notes shall be subject to deductions or withholdings for

or on account of any taxes, duties, assessments, or governmental charges

of whatever nature imposed, levied, collected, withheld, or assessed by or

within the Philippines or any authority therein or thereof having the power to

tax, including but not limited to stamp, issue, registration, documentary,

value-added or similar tax, or other taxes, duties, assessments, or

government charges, including interest, surcharges, and penalties thereon

(the “New Taxes”), and (b) the Bank does not redeem the Notes prior to

stated maturity, then all payments of principal and interest in respect of the

Notes shall be made free and clear of, and without withholding or deduction

for, any such New Taxes, unless such withholding or deduction is required

by law. In that event, the Bank shall pay to the Noteholders concerned such

additional amount as will result in the receipt by the Noteholders of such

amounts as would have been received by them had no such withholding or

deduction for New Taxes been required.

Documentary stamp tax for the primary issue of the Notes and the

documentation, if any, shall be for the Bank’s account.

GOVERNING LAW These Terms and Conditions shall be governed by and construed in

accordance with the laws of the Republic of the Philippines

GOVERNING

REGULATIONS

BSP Memorandum to All Banks and Non-Bank Financial Institutions dated

17 February 2003 and Circular Nos. 280 (2001) and 503 (2005) on the

issuance of unsecured subordinated debt instruments and other related

circulars and issuances, as may be amended from time to time

9

INVESTMENT

CONSIDERATIONS

See “Investment Considerations” for a discussion of certain factors to be

considered in connection with an investment in the Notes

ARRANGER Standard Chartered Bank (“SCB”)

SELLING AGENTS SCB, Multinational Investment Bancorporation (“MIB”), BDO Capital and

Investment Corporation (“BDO Capital”), Citicorp Financial Services &

Insurance Brokerage Philippines, Inc. (“CFSI”) and to the extent allowed

under the Governing Regulations, the Bank

REGISTRAR AND

PAYING AGENT Philippine Depository & Trust Corporation

MARKET MAKER Initially, SCB, and may refer, when the circumstances warrant, to the

PDEx

PUBLIC TRUSTEE The Development Bank of the Philippines (“DBP”)

PURPOSE OF ISSUANCE

The Notes will be used to raise additional Tier 2 capital and to further increase and strengthen its capital

base.

10

SELECTED FINANCIAL INFORMATION

The following summary financial information has been derived from the Financial Statements, and is qualified in its

entirety by reference to such Financial Statements, including the notes thereto. The Bank's 2006 and 2007 audited

financial statements have been prepared in accordance with Philippine Financial Reporting Standards. The 2008

audited financial statements have been prepared in accordance with Financial Reporting Standards in the Philippines

for Banks. The following data should be read together with more detailed information contained in “Investment

Considerations”, “Description of the Bank” and the financial statements and notes included elsewhere in this Offering

Circular.

For the years ended 31 December

2006

2007

2008

Consolidated Statements of

Condition (P millions)

Cash and other cash items 5,005.7 5,875.7 6,807.9

Due from the Bangko Sentral ng Pilipinas 13,787.9 17,611.4 16,391.0

Due from other banks 7,653.7 4,744.9 4,862.2

Investment securities 58,906.0 64,584.5 46,810.8

Loans and other receivables – net 108,933.4 117,195.2 164,402.9

Investments in associates – net 2,049.6 4,172.9 4,294.2

Bank premises, furniture, fixtures and

equipment – net 3,387.5 3,503.8 4,029.8

Investment properties – net 9,984.9 7,761.4 7,387.6

Deferred tax assets 1,832.0 1,645.8 1,391.7

Other resources – net 12,168.9 12,002.3 11,892.1

TOTAL RESOURCES 223,709.7 239,097.9 268,270.2

Deposit liabilities

Demand 9,878.1 10,765.2 11,125.1

Savings 57,975.9 66,769.8 75,738.4

Time 89,696.2 98,393.8 109,363.5

Bills payable 17,634.0 12,820.5 21,452.6

Bonds payable 6,689.1 5,650.7 6,002.8

Outstanding acceptances payable 234.0 234.7 318.9

Accrued taxes, interest and other

expenses 2,835.2 3,087.5 2,787.5

Subordinated debt 5,427.7 5,158.1 6,941.9

Other liabilities 9,947.5 7,197.2 6,902.8

TOTAL LIABILITIES 200,317.8 210,077.5 240,633.5

CAPITAL FUNDS 23,391.9 29,020.4 27,636.7

TOTAL LIABILITIES AND EQUITY 223,709.7 239,097.9 268,270.2

11

For the years ended 31 December

2006

2007

2008

Consolidated Statements of

Income (P millions)

INTEREST INCOME ON

Loans and other receivables 9,844.0 9,583.8 10,885.3

Investment securities 5,074.8 4,917.9 3,991.9

Others 409.1 828.7 782.4

15,327.9 15,330.4 15,659.6

INTEREST EXPENSE ON

Deposit liabilities 5,026.3 4,192.6 5,128.8

Bills payable and other borrowings 3,043.2 2,318.7 2,060.7

8,069.5 6,511.3 7,189.5

NET INTEREST INCOME

7,258.4 8,819.1 8,470.1

IMPAIRMENT LOSSES – net

1,749.3 942.5 998.5

NET INTEREST INCOME AFTER

IMPAIRMENT LOSSES

5,509.1 7,876.6 7,471.6

OTHER INCOME

Trading gain (loss)

2,377.6 1,329.1 (511.9)

Service charges and fees

1,078.7 1,514.5 1,643.4

Miscellaneous

1,597.7 1,537.0 3,465.2

5,054.0 4,380.6 4,596.7

OTHER EXPENSES

Employee benefits

2,184.4 2,384.4 2,524.9

Occupancy

1,435.1 1,410.8 1,492.8

Taxes and licenses

1,369.3 1,068.9 1,143.5

Other operating expenses

3,058.0 3,303.8 3,814.6

8,046.8 8,167.9 8,975.8

INCOME BEFORE TAX

2,516.3 4,089.3 3,092.5

TAX EXPENSE

626.9 845.6 919.4

NET INCOME

1,889.4 3,243.7 2,173.1

Attributable to: Equity Holdings of Parent 2,052.6 3,207.6 2,153.7

Minority Interest

(163.2) 36.1 19.4

12

For the years ended 31 December

2006

2007

2008

Selected Financial Ratios (Pro-forma, in percent except Earnings per Share)

Return on assets(1) 1.01 1.42 0.87

Return on shareholders’ equity(2) 12.64 12.43 7.40

Net interest margin(3) 4.84 5.00 4.25

Cost-income ratio(4) 65.36 61.88 68.69

Loans-to-deposits(5) 53.73 59.19 67.31

Tier I capital adequacy ratio(6) 18.73 15.06 13.19

Total capital adequacy ratio(7) 20.30 18.70 17.30

Total equity-to-total assets(8) 10.46 12.14 10.30

Total non-performing loans-to-total loans

– excluding interbank loans(9) 7.58 6.29 3.02

Total non-performing loans-to-total loans

– including interbank loans(10) 6.06 5.66 2.55

Allowances for probable loan losses to

total loans(11) 5.54 4.94 2.35

Allowances for probable loan losses-to-

total non-performing loans(12) 73.04 78.48 77.84

Earnings per share (P) (13) 2.82 2.93 1.72

Notes:

(1) Net income divided by average total resources for the period indicated.

(2) Net income divided by average total capital funds for the period indicated.

(3) Net interest income divided by average interest-earning assets.

(4) Total operating expenses divided by the sum of net interest income and other income.

(5) Total loans divided by total deposits.

(6) Tier I capital divided by total risk-weighted assets.

(7) Total capital divided by total risk-weighted assets.

(8) Total capital funds divided by total resources.

(9) Total nonperforming loans divided by total loans – excluding interbank loans.

(10) Total nonperforming loans divided by total loans – including interbank loans.

(11) Total allowance for probable loan losses divided by total loans.

(12) Total allowance for probable loan losses divided by non-performing loans.

(13) Net income divided by weighted average common shares.

13

INVESTMENT CONSIDERATIONS

An investment in the Notes involves a number of investment considerations. You should carefully consider all the

information contained in this Offering Circular including the investment considerations described below, before any

decision is made to invest in the Notes. The Bank's business, financial condition and results of operations could be

materially adversely affected by any of these investment considerations. The market price of the Notes could decline

due to any one of these risks, and all or part of an investment in the Notes could be lost.

The following discussion is not intended to be a comprehensive description of the risks and other factors and is not in

any way meant to be exhaustive. Prospective Noteholders are encouraged to make their own independent legal, tax,

financial, and business examination of the Bank, the Notes, and the market. Neither the Bank nor the Arranger makes

any warranty or representation on the marketability or price on any investment in the Notes.

CONSIDERATIONS RELATING TO THE PHILIPPINES

Substantially all of the Bank’s operations and assets are based in the Philippines; therefore any

downturn in general economic conditions in the Philippines could have a material adverse

impact on the Bank

Substantially all of the Bank’s business operations and assets are based in the Philippines. As a result, the

Bank’s income, results of operations and the quality and growth of its assets depend, to a large extent, on

the performance of the Philippine economy. In the past, the Philippines has experienced periods of slow or

negative growth, high inflation, significant devaluation of the Philippine currency and the imposition of

exchange controls.

From mid-1997 to 1999, the economic crisis in Asia adversely affected the Philippine economy, causing a

significant depreciation of the peso, increases in interest rates, increased volatility and the downgrading of

the Philippine local currency sovereign rating and the ratings outlook for the Philippine banking sector.

These factors had a material adverse impact on the ability of many Philippine companies to meet their

debt-servicing obligations. In particular, the significant depreciation of the peso made it difficult for many

Philippine companies with peso revenue streams and significant U.S. dollar or other foreign currency-

denominated loans or costs to meet their repayment obligations. While the Philippine economy registered

positive economic growth in the period from 1999 to 2001 as it recovered from the Asian economic crisis, it

continues to face a significant budget deficit, limited foreign currency reserves, a volatile peso exchange

rate and a relatively weak bank sector.

In 2006, GDP growth was at 5.4% while GNP growth was at 6.1%. In 2007, GDP growth increased to

7.3%. In 2008, GDP growth slowed down to 4.5%. Prospects for future growth remain uncertain with the

global economic crisis threatening to curb consumption and export demand from emerging market

economies including the Philippines. In February 2009, the Government announced that the budget deficit

for fiscal year 2008 was P68.1 billion, below the government’s target ceiling of P75 billion for the same

period.

Any deterioration in economic conditions in the Philippines as a result of these or other factors, including a

significant depreciation of the Peso or increase in interest rates, could materially adversely affect the

Bank’s borrowers and contractual counter parties. This, in turn, could materially and adversely affect the

Bank’s financial condition and results of operations, including the Bank’s ability to grow its asset portfolio,

the quality of the Bank’s assets and its ability to implement the Bank’s business strategy.

14

Volatility in the value of the Peso against the U.S. dollar and other currencies as well as in the

global financial and capital markets could adversely affect the Bank's business

During the last decade, the Philippine economy has from time to time experienced devaluation of the Peso

and limited availability of foreign exchange. In July 1997, the BSP announced that it would allow market

forces to determine the value of the Peso. From 30 June 1997 to 31 December 2003, the Peso has

experienced periods of significant depreciation and has declined from P29.00 = U.S. $1.00 (average) in

July 1997 to P56.267 = U.S. $1.00 as at 31 December 2004. However, the Peso in recent years has further

strengthened versus the U.S. dollar on the back of positive investor sentiment and increased dollar flows

both from foreign investors and Overseas Filipino Workers. From its end-December 2004 level, the Peso

appreciated to P47.52 by end-December 2008, an appreciation of 15.5% over the four-year period.

Nevertheless, like all emerging markets, the Philippines is not immune to volatilities in the global financial

and capital markets and changing investor risk appetites that could trigger capital outflows and put

pressure on the Peso. Given this, a decline in the value of the Peso as regards foreign currencies may

affect the ability of the Bank's customers to service debt obligations denominated in foreign currencies and

increase non-performing loans. There can be no assurance that the Peso will not depreciate further against

other currencies and that such depreciation will not have an adverse effect on the Bank.

Under BSP guidelines, the Bank is required to match Foreign Currency Deposit Unit (“FCDU”) liabilities

with foreign currency assets in its FCDU books. As at 31 December 2008, the Bank had P268.3 billion of

resources and P240.6 billion of liabilities (of which P72.1 billion of resources and P73.2 billion liabilities

were in its FCDU books). The Bank has entered into foreign exchange forward contracts as a means of

hedging against foreign currency fluctuations. More importantly, it is the Bank’s policy to extend foreign

exchange loans only to entities with natural or regulatory hedge (exporters or those with foreign exchange-

adjustment mechanisms like utilities). However, there can be no assurance that the Bank will be able to

successfully hedge its exposure to foreign currency risks.

In early 2007, the BSP liberalized its foreign exchange policies pertaining to current account and capital

account transactions as well as to prudential regulations. On the latter, the BSP has imposed a symmetrical

limit of 20% of unimpaired capital with an absolute limit of US$50 million on both the overbought and

oversold positions of banks. In particular, the oversold limit at 20% of unimpaired capital serves as a

prudential measure to discourage excessive exposure of banks to foreign exchange risks. However, the

BSP's liberalization of its foreign exchange policies has its downside. While it encourages freer dollar

inflows, in the same manner it opens up the country to a greater magnitude of capital flight at the first sign

of market volatility.

The disruptions recently experienced in the international capital markets have led to reduced

liquidity and increased credit risk premiums for certain market participants.

The disruptions recently experienced in the international capital markets have led to reduced liquidity and

increased credit risk premiums for certain market participants and have resulted in a reduction of available

financing. Companies located in countries in the emerging markets may be particularly susceptible to these

disruptions and reductions in the availability of credit or increases in financing costs, which could result in

them experiencing financial difficulty.

In addition, the availability of credit to entities operating within the emerging markets is significantly

influenced by levels of investor confidence in such markets as a whole and so any factors that impact

market confidence (for example, a decrease in credit ratings or state or central bank intervention in one

market) could affect the price or availability of funding for entities within any of these markets.

15

Political instability may have a negative effect on the Philippine economic condition which could

have a material impact on the Bank’s business.

The Philippines has from time to time experienced political instability. No assurance can be given that the

political environment in the Philippines will be stable and that current or future governments will adopt

economic policies conducive to sustained economic growth, and we cannot make any assurance that the

Bank will not be affected, materially or otherwise, by any change in the Philippine political environment.

In 2001, following an impeachment trial, mass demonstrations and the military declaration of its withdrawal

of support, former President Joseph Estrada was removed from office. Then Vice President Gloria

Macapagal Arroyo was installed as President of the Philippines on January 20, 2001.

National and local elections were held on May 10, 2004. Notwithstanding the protest rallies and several

disqualification cases filed against President Arroyo (none of which prospered), she and Senator Noli De

Castro were proclaimed by Congress as President and Vice President, respectively on June 24, 2004. In

2005, President Arroyo was alleged to have committed fraud in the 2004 national elections based on taped

conversations she supposedly had with an official of the Commission on Elections (“Comelec”). After

President Arroyo admitted to speaking with a Comelec official, several cabinet members resigned from

their posts and, along with opposition groups, called for her resignation. Impeachment complaints were

then filed against President Arroyo, but the House of Representatives eventually voted to reject the

impeachment complaints. Impeachment complaints were re-filed in 2006 and 2007 and have also been

rejected.

In February 2006, the Government thwarted a coup plot supposedly involving certain military rebels and

communists. President Arroyo put the country under a state of emergency, citing an alleged tactical

alliance between right- and left-wing enemies of the state and a conspiracy over broad front to topple the

Government. The state of emergency was lifted after a week.

In November 2007, a group of military rebels together with a senator walked out of their trial in Makati City

and occupied the second floor of the Manila Peninsula Hotel calling for President Arroyo to resign. They

were soon joined by a few church officials and former Vice President Teofisto Guingona who appealed to

the public for support. After a few hours, the mutinous group agreed to surrender to avoid bloodshed.

Since 2007 the Philippine Senate has been conducting inquiries into the allegedly anomalous US$329

million deal to construct the National Broadband Network. In February 2008, former Philippine Forest

Corporation president Rodolfo Noel Lozada Jr. testified in the Senate and accused key Arroyo allies of

overpricing the deal and receiving and/or demanding hefty commissions for the implementation of said

deal. The controversy has again fueled mass protests by various cause-oriented groups calling for the

President to resign.

The Arroyo administration has been pushing for changes to the Philippine Constitution including, among

others, a change in the form of government from presidential to parliamentary. However, the Philippine

Supreme Court recently ruled to deny petitions to allow a People’s Initiative that would have made

constitutional changes possible through an abbreviated process and a plebiscite.

Another impeachment complaint against President Arroyo was filed, citing the NBN controversy. This,

however, has not yet been taken up by Congress and falls within the constitutional ban prohibiting the filing

of an impeachment complaint within one year from the filing of the last impeachment complaint.

In August 2008, certain members of a long-standing secessionist group, the Moro Islamic Liberation Front

(“MILF”), launched attacks on government troops and civilians, including damage to property, following a

16

stall in the signing of the Memorandum of Agreement on Ancestral Domain (“MOA-AD”), the result of peace

talks between the Philippine Government and the MILF in an effort to promote mutual cooperation and

preserve the development of Mindanao. The delay came on the heels of allegations that the MOA-AD was

essentially ceding highly developed portions of Mindanao to the secessionists without a popular

consensus, thus compromising national identity and granting sovereignty to the MILF. The attacks have

decreased with the onset of Ramadan, but are nonetheless far from abated. The government continues to

hold out on the MOA-AD signing.

General elections are expected to be held in 2010.

No assurance can be given that the future political environment in the Philippines will be stable or that

current or future Governments will adopt economic policies conducive to sustaining economic growth.

Political instability in the Philippines could negatively affect the general economic conditions in the

Philippines which could have a material impact on the financial results of the Bank and the Group.

An increase in the number of terrorist activities in the Philippines could negatively affect the

Philippine economy and, therefore, the Group’s financial condition and its business

The Philippines has been subject to a number of terrorist attacks in recent years. An increase in the

number of terrorist activities in the Philippines could negatively affect the Philippine economy and,

therefore, the Group’s financial condition and its business.

The Philippine army has been in conflict with the Abu Sayyaf organization, which has ties to the al-Qaeda

terrorist network and has been identified as being responsible for kidnapping and terrorist activities in the

Philippines. There has been a series of bombings in the Philippines, mainly in southern cities. Although no

one has claimed responsibility for these attacks, Philippine military officials have stated that the attacks

appeared to be the work of the Abu Sayyaf organization. On February 24 2004, a bomb exploded on a

Superferry ship off the coast of Manila, causing the vessel to sink, killing 116 people. On 14 February 2005,

three bombs exploded in the cities of General Santos, Davao and Makati, killing at least 11 people and

injuring over 100 people. On 8 June 2008, gunmen believed to belong to the Abu Sayyaf Group abducted

broadcast journalist Ces Drilon of ABS-CBN, her two cameramen and a professor of Mindanao State

University in Sulu but were released 10 days later. On 15 January 2009, three workers from the

International Committee of the Red Cross were also abducted by members of the group. As of 2 April 2009,

two of those workers are still in the custody of the rebel group.

There can be no assurance that the Philippines will not be subject to further, or an increased number of,

acts of terrorism in the future. Terrorist attacks have, in the past, had a material adverse effect on

investment and confidence in, and the performance of, the Philippine economy and, in turn, the Group’s

business. Furthermore, there can be no assurance that the Philippines will not suffer a large-scale terrorist

attack which cripples the Philippine economy for a significant period of time.

Corporate governance and disclosure standards in the Philippines may differ from those in

more developed countries

While a principal objective of the Philippine securities laws and the listing rules of the Philippine Stock

Exchange (“PSE”) is to promote full and fair disclosure of material corporate information, there may be less

publicly available information about Philippine public companies, such as the Bank, than is regularly made

available by public companies in the U.S. and other countries. Furthermore, although the Bank complies

with the requirements of the PSE with respect to corporate governance standards, these standards may

17

differ from those applicable in other jurisdictions. For example, the Philippine Securities Regulation Code

requires the Bank to have at least two independent directors or such number of independent directors as is

equal to 20% of the Board, whichever is the lower number. The Bank usually has two independent

directors. Many other jurisdictions require significantly more independent directors.

Financial statements of Philippine banks are prepared in accordance with Financial Reporting Standards in

the Philippines for Banks which requires the use of certain critical accounting estimates. Management of

institutions are to use their own judgment to come up with estimates on certain statement of condition and

income statement accounts such as, but not limited to, impairment losses on loans and receivables; fair

value of derivatives; impairment of available-for-sale and held-to-maturity securities; and realization of

deferred income tax assets among others.

CONSIDERATIONS RELATING TO THE PHILIPPINE BANKING INDUSTRY

The Philippine banking industry is highly competitive and increasing competition may result in

declining margins in the Bank's principal businesses

The Bank is subject to significant levels of competition from many other Philippine banks and branches of

international banks, including competitors which in some instances have greater financial and other capital

resources, a greater market share and greater brand name recognition than the Bank. The banking

industry in the Philippines is a mature market that has, in recent years, been subject to consolidation and

liberalization, including liberalization of foreign ownership regulations. There are currently a total of 38

domestic and foreign commercial banks operating in the Philippines.

The recent mergers and consolidations in the banking industry, as well as the liberalization of foreign

ownership regulations in banks, have allowed the emergence of foreign and bigger local banks in the

market. This is expected to increase the level of competition both from Philippine banks and branches of

international banks. This may impact the Philippine banks’ operating margins, but this would also enhance

the industry’s overall efficiency, business opportunities and service delivery.

In the future, the Bank may face increased competition from financial institutions offering a wider range of

commercial banking services and products, larger lending limits, greater financial resources and stronger

balance sheets than the Bank. Increased competition may arise from:

���� Other Philippine banks and financial institutions with significant presence in Metro Manila

and large country-wide branch networks;

���� Foreign banks, due to, among other things, relaxed standards which permitted large

foreign banks to open branch offices;

���� Domestic banks entering into strategic alliances with foreign banks with significant

financial and management resources; and

���� Continued consolidation in the banking sector.

There can be no assurance that the Bank will be able to compete effectively in the face of such increased

competition. In addition, the Bank faces intense competition in areas it has identified for growth such as

consumer loans and remittances. Increased competition may make it difficult for the Bank to increase the

size of its loan portfolio and deposit base, as well as cause increased pricing competition, which could have

18

a material adverse effect on its margins, results of operations and financial condition and inhibit the Bank’s

ability to implement its growth strategy.

In addition, the Bank may face increasing competition for Japanese clients. UFJ’s share disposal was

prompted by its merger with The Bank of Tokyo-Mitsubishi, which already has a presence in the

Philippines. There can be no assurances that the Bank’s Japanese related business will not suffer because

of perceptions that the Bank no longer has a strong Japanese alliance.

Philippine banks are generally exposed to higher credit risks and greater market volatility than

banks in more developed countries

Philippine banks are subject to the credit risk that Philippine borrowers may not make timely payment of

principal and interest on loans and, in particular that, upon such failure to pay, Philippine banks may not be

able to enforce the security interest they may have. The credit risk of Philippine borrowers is, in many

instances, higher than that of borrowers in developed countries due to:

���� The greater uncertainty associated with the Philippine regulatory, political, legal and

economic environment;

���� The dependence of the Philippine economy in general on exports for economic growth. In

recent years, however, Philippine economic growth has largely been fueled by personal

consumption spending that accounted for 70% of Gross Domestic Product (“GDP”);

���� The large foreign debt of the Government, relative to the gross domestic product of the

Philippines. The country’s foreign debt has increased by 21.73%, from P1.505 trillion as at

January 2008 to P1.87 trillion in January 2009. This already represents 24.9% of 2008

GDP at current prices; and

���� The greater volatility of interest rates and U.S. dollar/Peso exchange rates.

Higher credit risk has a material adverse effect on the quality of loan portfolios and exposes Philippine

banks, including the Bank, to more potential losses and higher risks than banks in more developed

countries. In addition, higher credit risk generally increases the cost of capital for Philippine banks

compared to their international counterparts. Such losses and higher capital costs arising from this higher

credit risk may have a material adverse effect on the Bank's financial condition, liquidity and results of

operations. According to data published by the BSP, average non-performing loan ratios (including

interbank loans) in the Philippine banking system were 5.7%, 4.5%, and 3.5% as at the years ended 31

December 2006, 2007 and 2008, respectively.

The Bank's ability to assess, monitor and manage risks inherent in its business differs from the

standards of its counterparts in more developed countries

The Bank is exposed to a variety of risks, including credit risk, market risk, portfolio risk, foreign exchange

risk and operational risk. The effectiveness of the Bank's risk management is limited by the quality and

timeliness of available data in the Philippines in relation to factors such as the credit history of proposed

borrowers and the loan exposure borrowers have with other financial institutions. In addition, the

information generated by different groups within the Bank may be incomplete or obsolete. The Bank may

also have developed credit screening standards in response to such inadequacies in quality of credit

information that are different from, or inferior to, the standards used by its international competitors. As a

19

result, the Bank's ability to assess, monitor and manage risks inherent in its business would not meet the

standards of its counterparts in more developed countries. If the Bank is unable to acquire or develop in the

future the technology, skills set and systems available to meet such standards, it could have a material

adverse effect on the Bank's ability to manage these risks and on the Bank's financial condition, liquidity

and results of operations.

CONSIDERATIONS RELATING TO THE BANK

The reports of the Bank’s independent auditors with respect to the consolidated statements of

condition of the Bank as of 31 December 2006, 2007 and 2008 and the related consolidated

income statements, statements of changes in capital funds and cash flows statements for the

periods then ended were qualified

The Bank prepared its 2006 and 2007 consolidated financial statements in accordance with Philippine

Financial Reporting Standards and its 2008 consolidated financial statements in accordance with Financial

Reporting Standards in the Philippines for Banks, other than with respect to the matters qualified in the

relevant audit report. Punongbayan & Araullo (“P&A”), the Bank’s independent auditors for fiscal years

2006 to 2008 have identified certain matters relating to the preparation of the Bank’s consolidated financial

statements that were not consistent with the applicable accounting standards and have included

qualifications to such effect in their published audit reports. The Bank’s auditors issued audit reports

included qualifications with respect to the staggered recognition of the additional allowance for impairment

and losses, not writing-off of impaired credit card receivables, the derecognition of certain non-performing

assets (“NPAs”) transferred and recording by the Bank of certain transactions pending approval by the BSP

(applicable to non-consolidated or Bank financial statements only). The qualifications are described below:

• The Bank transferred certain NPAs to special purpose vehicles (“SPVs”), including transfers to

Philippine Investment One, Inc. (“PIOI”) and New Pacific Resources Management Inc. (“NPRMI”).

The transfers to PIOI and NPRMI were in consideration for, among other things, subordinated

notes that contained provisions that payments under the notes are dependent on the SPV’s ability

to make collections on the transferred NPAs. The Bank’s auditors have determined that such

provisions do not reflect a complete transfer of risks and rewards as required by applicable

accounting standards and that the transferred NPAs should be recognized in the Bank’s financial

statements, including any required additional allowance for impairment. Moreover, under Republic

Act No. 9182 and the various resolutions and circulars published by the BSP regarding such Act

(together, the “SPV Act”), the Bank is permitted to defer and amortize the required additional

allowance for impairment on the NPAs transferred to PIOI and on the losses resulting from

transfers of NPAs to other SPVs. Applicable accounting standards in the Philippines, however,

require the full recognition of the required additional allowance for impairment and losses against

current operations in the period that such impairment and losses were determined instead of

capitalizing it as deferred charges and amortizing it over future periods. Had the Bank reflected its

interest in PIOI and NPRMI in its financial statements and not derecognized the NPAs transferred,

and had the Bank fully recognized the required additional allowance for impairment and losses, the

gross balance of the Bank’s loans and receivables account would have increased by P5.2 billion

as of 31 December 2007 and 2008, respectively; allowance for impairment would have increased

by P1.4 billion and P2.0 billion in 2007 and 2008, respectively; available-for-sale securities would

have decreased by P1.4 billion and in 2007 and 2008; investment property would have increased

by P1.4 billion in 2007 and 2008; deferred charges (part of Other Resources) would have

decreased by P8.6 billion and P7.8 billion in 2007 and 2008, respectively; other liabilities would

20

have increased by P24.0 million and P26.5 million in 2007 and 2008, respectively; and net income

would have decreased by P1.3 billion and P791.3 million in 2006 and 2008, respectively

• Bankard obtained BSP approval for it to stagger the booking of P3.6 billion required additional

allowance for impairment as of 31 December 2003 for a period of seven years starting in fiscal

year 2004. Applicable accounting standards in the Philippines, however, require the full recognition

of required allowance for impairment against current operations in the period such losses were

determined. In 2006, Bankard sold and transferred to the Bank certain credit card receivables,

P2.8 billion of which were approved by the BSP for the staggering scheme. After the sale and

transfer of the receivables, the Bank charged in fiscal year 2006 an impairment loss of P162.1

million of such receivables and wrote-off the remaining balance of P2.6 billion against allowance

for impairment, instead of against operations. Had Bankard recognized the required allowance for

impairment in the period the losses were determined and had the subsequent write-off of the

impaired credit card receivables been charged against 2006 operation, both balances of the loans

and receivables account and the surplus account would have decreased by P2.6 billion as of 31

December 2007 and 2008. Further, the Bank’s net income would have decreased by P2.1 billion in

fiscal year 2006.

• As part of its corporate restructuring strategy on November 27, 2006, the Bank approved the

capital infusion of P1 billion each into RCBC Capital Corporation (“RCBC Capital”) and Bankard

Inc. (“Bankard”), both subsidiaries of the Bank, by way of conversion of RCBC Capital’s and

Bankard’s debt to the Bank into equity. The Bank reflected the effects of these transactions in its

2006 financial statements (non-consolidated or Bank only) by recording the capital infusion as part

of Investments in Subsidiaries and Associates account and, in addition, provided for allowance for

impairment amounting to P200 million. However, BSP approved the transactions only on February

23, 2007. The Bank’s auditors have determined that these transactions should have been

recognized only at the time of the BSP approval. Had the capital infusion not been recorded in the

2006 financial statements (non-consolidated or Bank only), the Bank’s loans and receivables

would have increased by P2.0 billion; investments in subsidiaries and associates would have been

decreased by P1.8 billion and its 2006 net income would have been increased by P200.0 million.

Certain of these deviations from accounting standards are allowed by the BSP under the SPV Act or

otherwise. However, there can be no assurances that the BSP will not change its policies to align its

policies with the applicable accounting standards. If the BSP were to change its policies, or if the Bank

were to make adjustments to its financial statements to make them fully consistent with the applicable

accounting standards, the Bank’s impairment losses would increase resulting in a decrease in net income.

If the Bank were to make any such adjustments to its financial statements, it may restate the financial

statements of previous years, including the financial statements included in this Offering Circular. The

Bank’s financial statements included in this Offering Circular may not be comparable with the financial

statements of other banks in the Philippines and may not be comparable with the Bank’s future or past

financial statements that have been prepared on a different basis without such qualifications.

The Bank may incur significant losses from its trading and investment activities due to market

fluctuations and volatility

In recent years, the performance of the Bank’s treasury operations has been a key factor in its operating

income. Trading and foreign exchange gains were P2.1 billion and P1.2 billion for fiscal years 2006 and

2007, respectively, which represented 17.2% and 8.9% of operating income (net interest income and other

operating income) for the respective periods. However, in 2008, trading and foreign exchange gains were

21

down 71.7% to P340.0 million, which now represents just 2.6% of operating income. This trend has shown

that the income derived from these activities is inherently volatile and may not be sustainable year after

year.

The Bank’s income from these activities are subject to substantial volatility based on, among other things,

changes in interest rates, foreign currency exchange rates, debt prices, stock market fluctuations

economic, political and other conditions that may fluctuate from time to time. Given the current turmoil in

the global financial markets, there can be no assurance that, in the future, the Bank will be able to realize a

stable amount of trading and foreign exchange gains, that it will not incur a loss from such trading or that it

will hold unto its trading and investment securities to realize interest income, any or all of which could have

a material adverse effect on the Bank’s future net income.

A substantial portion of the Bank’s assets are held in the form of Government securities. As of 31

December 2008, the Bank held P40.0 billion Government securities, respectively, which comprised 14.9%

of its total assets. Such instruments are subject not only to market fluctuations but to political or economic

changes in the Government’s sovereign rating. There can be no assurance that the rating of Philippine

sovereign debt will not be subject to downgrades or negative outlooks. Furthermore, should the

Government be unable to service its obligations, the Bank would suffer a material adverse impact on its

financial condition.

In addition, due to the tainting of the Bank’s held-to-maturity (“HTM”) securities in 2006, the Bank was

forbidden to classify any securities under the held-to-maturity classification for two years. The tainting was

lifted in 2008 which led to the re-classification of P20.7 billion worth of securities to the held-to-maturity

classification. Any such future reclassification or tainting could materially alter the mark-to-market values

reflected in the financial statements and could add to the volatility of the Bank’s income.

The Bank may face increasing levels of non-performing loans and provision for impairment of

assets

The Bank’s results of operations have been, and continue to be, negatively affected by the level of its non-

performing loans (“NPLs”). For fiscal years 2006, 2007 and 2008, the Bank made charges to income

provisions for impairments of P1.7 billion, P0.9 billion, and P1.0 billion, respectively, representing

approximately 24.1%, 10.7% and 11.8% of the Bank’s net interest income for these periods. Ongoing

volatile economic conditions in the Philippines continue to adversely affect many of the Bank’s customers,

causing uncertainty regarding their ability to fulfill their loan obligations thus significantly increasing the

Bank’s exposure to credit risk. These and other factors could result in an increased number of NPLs in the

future and would require the Bank to book additional provisions for impairment on loans.

While the Bank has instituted more aggressive NPL disposal activities and stricter credit processes, there

can be no assurance that the Bank will be successful in continuing to reduce its NPL levels. An increase in

the Bank’s NPLs could have a material adverse effect on its financial condition, capital adequacy and

results of operations. Part of the Bank’s NPL disposal strategy is to continue to sell NPLs to SPVs. The

Bank may not be able to sell its NPLs at commercially reasonable terms, if at all. In addition, certain of the

Bank’s past sales to SPVs have not sufficiently transferred the risks and rewards of the sold NPLs to the

SPVs in accordance with the applicable accounting standards. If the Bank were to include these NPLs in its

statement of condition, it would be required to increase its impairment losses and its financial condition and

results of operations would be negatively affected.

22

The Bank's provisioning policies in respect of non-performing loans require significant

subjective determinations which may increase the variation of application of such policies

BSP regulations require that Philippine banks classify non-performing loans based on four different

categories corresponding to levels of risk: Loans Especially Mentioned, Substandard, Doubtful and Loss.

Generally, classification depends on a combination of a number of qualitative as well as quantitative factors

such as the number of months payment is in arrear, the type of loan, the terms of the loan, and the level of

collateral coverage. These requirements have in the past, and may in the future, be subject to change by

the BSP. Periodic examination by the BSP of these classifications may also result in changes being made

by the Bank to such classifications and to the factors relevant thereto. In addition, these requirements in

certain circumstances may be less stringent than those applicable to banks in other countries and may

result in particular loans being classified as non-performing later than would be required in such countries

or being classified in a category reflecting a lower degree of risk.

Furthermore, the level of loan loss provisions which the Bank recognizes may increase significantly in the

future due to the introduction of new accounting standards. The level of provisions currently recognized by

the Bank in respect of its loan portfolio depends largely on the estimated value of the collateral coverage

for the portfolio. The level of the Bank's provisions may not be adequate to cover increases in the amount

of its non-performing loans, or any deterioration in the overall credit quality of the Bank's loan portfolio,

including the value of the underlying collateral. In particular, the amount of the Bank’s reported loan losses

may increase in the future as a result of factors beyond the Bank’s control.

Certain accounting standards have been adopted in the Philippines, based on International Accounting

Standards, which require the Bank’s loan loss provisions to reflect the net present value of the cash flows

of the loan and underlying collateral. These new accounting standards may result in the Bank recognizing

significantly higher provisions for loan loss in the future. The Bank may be unable to recover the assessed

value of its collateral when its borrowers default on their obligations which may expose the Bank to

significant losses.

While the Bank believes its current level of provisions and collateral position are more than adequate to

cover its non-performing loan exposure, an unexpected or significant increase in non-performing loan

levels may result in the need for higher levels of provisions in the future.

The Bank may be unable to recover the assessed value of its collateral when its borrowers

default on their obligations, which may expose the Bank to significant losses

The Bank may not be able to recover the value of any collateral or enforce any guarantee due, in part, to

the difficulties and delays involved in enforcing such obligations in the Philippine legal system. In order to

foreclose on collateral or enforce a guarantee, banks in the Philippines are required to follow certain

procedures specified by Philippine law. These procedures are subject to administrative and bankruptcy law

requirements more burdensome than in certain other jurisdictions. The resulting delays can last several

years and lead to deterioration in the physical condition and market value of the collateral, particularly

where the collateral is in the form of inventory or receivables. In addition, such collateral may not be