HOME DEVELOPMENT MUTUAL FUND

(Pag-IBIG Fund)
NOTES TO FINANCIAL STATEMENTS
(Amounts in Philippine Peso)

1. CORPORATE INFORMATION

Incorporation

The Home Development Mutual Fund (HDMF), also known as the Pag-IBIG
Fund, or the Fund, was created on June 11, 1978, by virtue of Presidential
Decree (PD) No. 1530 to address two of the country’s basic needs: generation
of savings and provision of shelter for the Filipino workers.

Under this Decree, two agencies administered Pag-IBIG Fund namely:

(a) Social Security System (SSS) for the funds from private employees; and
(b) Government Service Insurance System (GSIS) for the funds from
government workers. To meet the urgent need to consolidate all long-term, low-
interest housing funds under the administration of a single agency to support the
National Shelter Program of the then Ministry of Human Settlements, Executive
Order (EO) No. 527 was issued on March 1, 1979, transferring the
administration of Pag-IBIG Fund to National Home Mortgage Finance
Corporation (NHMFC). As such, NHMFC took care of the administration,
custody, disposal, and utilization of the funds, including the authority to
promulgate Implementing Rules and Regulations (IRRs) pertaining to the
aforesaid functions. On June 4, 1979, EO No. 538 was issued merging the two
funds into what is now known as Pag-IBIG Fund, which stands for
Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industriya at Gobyerno. It
remained under the administration of the NHMFC until PD No. 1530 was
amended by PD No. 1752 on December 14, 1980, making it an independent
corporation with its own Board of Trustees (BOT).

Shortly after the administration of President Corazon C. Aquino, Pag-IBIG

contributions were suspended from May to July 1986. However, on August 1,
1986, former President Aquino issued EO No. 35 directing the resumption of
mandatory Pag-IBIG membership under more liberal terms. The contribution
rate was reduced from three per cent to one per cent of fund salary for
employees earning over P1,500. Employer share was cut from three per cent to
a fixed rate of two per cent while the maximum fund salary was raised from
P3,000 to P5,000.

January 1, 1987 marked the return of Pag-IBIG membership to a voluntary

program under EO No. 90. The next eight years witnessed the growth of Pag-
IBIG Fund as a voluntary fund. On June 17, 1994, then President Fidel V.
Ramos signed Republic Act (RA) No. 7742, which reverted Pag-IBIG
membership back to mandatory effective January 1, 1995.

On July 21, 2009, then President Gloria Macapagal-Arroyo signed into law RA
No. 9679, otherwise known as the “Home Development Mutual Fund Law of
2009.” The new law and its IRR took effect on August 27, 2009, and
November 3, 2009, respectively. It repealed PD Nos. 1530 and 1752 as well as

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EO Nos. 35 and 90. Its landmark provisions are those expanding the mandatory
coverage of the Pag-IBIG Fund to include all employees compulsorily covered
by SSS and GSIS, as well as Filipinos employed by foreign-based employer;
exempting Pag-IBIG Fund employees from the coverage of the Salary
Standardization Law and restoring tax exemption privileges.

Section 19 of RA No. 9679 states that all laws to the contrary notwithstanding,
the Fund and all its assets and properties, all contributions collected and all
accruals thereto and income or investment earning therefrom, as well as all
supplies, equipment, papers or documents shall be exempt from any tax,
assessment, fee, charge, customs or import duty; and all benefit payments
made by the Pag-IBIG Fund shall likewise be exempt from all kinds of taxes,
fees, charge, and shall not be liable to attachments, garnishments, levy or
seizure by or under any legal or equitable process whatsoever, either before or
after receipt by the person or person entitled thereto, except to pay any debt of
the member to the Fund. No tax measure of whatever nature enacted shall
apply to the Fund unless it expressly revokes the declared policy of the State in
Section 2 of RA No. 9679 granting tax exemption to the Fund. Any tax
assessment against the Fund shall be null and void.

The Fund, together with the other housing agencies namely National Housing
Authority (NHA), National Home Mortgage Finance Corporation (NHMFC) and
Social Housing Finance Corporation (SHFC), is under the administrative
supervision of the Department of Human Settlements and Urban Development
(DHSUD). DHSUD was formed by virtue of RA No. 11201, which was signed
into law on February 14, 2019, and through the consolidation of the Housing and
Urban Development Coordinating Council (HUDCC) and the Housing and Land
Use Regulatory Board (HLURB). It shall act as the primary national government
entity responsible for the management of housing, human settlement, and urban
development. The Secretary of the DHSUD acts as the Ex-officio Chairman of
the Pag-IBIG Fund.

Through the years, Pag-IBIG Fund has become the prime government financial
institution tasked with continually performing two of the nation’s basic concerns:
generation of savings and provision of access to home financing to the workers.
As such, it mobilizes an efficient, dynamic, regular, and integrated nationwide
savings system and, at the same time, enables low and middle-income families
to realize their dream of having decent shelter.

At present, the Fund has its Corporate Headquarters (CHQ) at the Petron
MegaPlaza Building, 358 Senator Gil J. Puyat Avenue, Makati City and it
operates in ten Housing Business Centers (HBCs), 17 Technical and
Administrative Support (TAS), 107 Branches, one Overseas Filipino Worker
(OFW) Center, 43 Member Services Offices (MSOs) and ten overseas posts.

Approval of Financial Statements

The financial statements of the Fund as at and for the years ended December
31, 2023 and 2022 were approved and authorized for issue by the BOT on April
23, 2024 in its Regular Board Meeting.

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2. MATERIAL ACCOUNTING POLICY INFORMATION

The material accounting policy information that has been used in the preparation
of these financial statements are summarized below. These policies have been
consistently applied to all the years presented, unless otherwise stated.

Basis of preparation of financial statements

a. Statement of compliance with Philippine Financial Reporting Standards

(PFRS)

The financial statements of the Fund have been prepared in accordance

with the PFRS as issued by the Philippine Financial Reporting Standards
Council (PFRSC). PFRS are adopted by the Financial and Sustainability
Reporting Standards Council (FSRSC) from the pronouncements issued by
the International Accounting Standards Board (lASB) and approved by the
Philippine Board of Accountancy (BOA). The Fund likewise adhered to
Commission on Audit (COA) Circular No. 2017-004 dated December 13,
2017, which lays down the guidelines on the preparation of financial
statements and other financial reports and implementation of the PFRS by
Government Corporations classified as Commercial Public Sector Entities
(CPSE).

The International Public Sector Accounting Standards Board (IPSASB) and

lASB, which promulgates the International Public Sector Accounting
Standards (lPSAS) and International Financial Reporting Standards (IFRS),
respectively, acknowledge the right of governments and national standards-
setters to establish their respective accounting standards and guidelines for
financial reporting in their jurisdictions.

b. Presentation of financial statements

The financial statements are presented in accordance with Philippine

Accounting Standards (PAS) 1, Presentation of Financial Statements. The
Fund presents all items of income and expenses in a single Statement of
Comprehensive Income (SCI).

The Fund considers materiality in all parts of its financial statements. Each
material class of similar items is presented separately whereas dissimilar
items that are individually immaterial are aggregated. Materiality
considerations are applied even when the standard requires a specific
disclosure and information is not obscured by aggregating or by providing
immaterial information.

The Notes to financial statements are presented in a systematic manner

that considers the effect on understandability and comparability. Each item
in the financial statements is cross-referred to any related information in the
notes.

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c. Basis of consolidation

The Fund has no consolidated financial statements because it has no

controlled subsidiaries or entities. Moreover, the Fund has no debt or equity
securities traded in an organized financial market and is not in the process
of filing its financial statements with the Securities and Exchange
Commission (SEC) or other regulatory organizations to issue any class of
instruments in an organized financial market. Its equity consists of
members’ contributions, the members being the owners of Pag-IBIG Fund,
employers’ counterparts for employed members, and the accumulated
dividends.

The financial statements presented include the combined financial

statements and transactions of the CHQ and its offices nationwide. All
inter-branch transactions and balances have been eliminated and
reconciled in the preparation of combined financial statements.

d. Functional and presentation currency

The combined financial statements are presented in Philippine Peso, which

is the Fund’s functional and presentation currency. All values are rounded
to the nearest peso, except when otherwise indicated.

e. Adoption of the COA Revised Chart of Accounts (RCA)

In compliance with COA Circular No. 2016-006 dated December 29, 2016,
and COA Circular No. 2020-002 dated January 28, 2020, “Adoption of the
Updated Revised Chart of Accounts for Government Corporations (2019)”,
the Fund adopted the RCA in its Trial Balance. General Ledger (GL) and
Subsidiary Ledger (SL) accounts were carefully analyzed and manually
mapped to the RCA.

Cash and cash equivalents

Cash includes cash on hand and in banks, both foreign and local. Cash in banks
earn interest at the respective bank deposit rates. Cash equivalents, on the
other hand, include highly liquid investments acquired three months or less
before maturity and subject to the insignificant risk of change in value resulting
from change in interest rates.

Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date.

Fair value hierarchy

PFRS 13, Fair Value Measurement, establishes a framework for measuring fair
value. It provides a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities

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(Level 1) and the lowest priority to unobservable inputs (Level 3). The three
levels of the fair value hierarchy under the standard are described as follows:

Level 1

Inputs to the valuation methodology are unadjusted quoted prices for identical
assets or liabilities in active markets that the Fund has access into.

Level 2

Inputs to the valuation methodology include:

 Quoted prices for similar assets or liabilities in active markets.

 Quoted prices for identical or similar assets or liabilities in inactive markets.
 Inputs other than quoted prices that are observable for the asset or liability.
 Inputs that are derived principally from or corroborated by observable market
data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must
be observed for substantially the full term of the asset or liability.

Level 3

Inputs to the valuation methodology are unobservable and significant to the fair
value measurement.

Fair value of debt and equity security investments of the Fund are measured
using Level 1 methodology, Level 2 measurement of fair value is applied to
receivables and Level 3 technique is used for measurement of investment
properties.

Financial instruments

The Fund adopted the applicable provisions of PFRS 9, Financial Instruments,

which superseded PAS 39, Financial Instruments: Recognition and
Measurement.

Financial assets and financial liabilities are recognized when the Fund becomes
a party to the contractual provisions of the financial instrument.

The method and assumptions used by the Fund in estimating the fair value of
the financial assets are:

 Debt securities - Fair values are generally based on quoted market prices. If
the market prices are not readily available, fair values are estimated using
adjusted quoted market prices of comparable investments.
 Equity securities - Fair values are based on quoted prices published in
markets.
 Receivables - Carrying amounts are net of provisions for impairment.
 Short-term investments - Carrying amounts are approximately at fair values.
 Cash and cash equivalents - Carrying amounts are approximately at fair
values.

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If the financial assets are not listed in an active market, the fair value is
determined using appropriate valuation techniques which include recent arm’s
length market transactions, comparison to similar instruments for which market
observable prices exists, and other relevant valuation models.

Details of the Fund’s net financial assets for CYs 2023 and 2022 are as follows:
Particulars 2023 2022
Financial Assets at Amortized Cost
Cash and cash equivalents 4,277,224,270 7,921,460,049
Investment in time deposits 0 2,112,519,000
Investment securities 36,496,671,902 38,790,338,754
Receivables - net 797,004,226,059 711,528,964,219
Restricted Funds 1,653,435,531 4,934,031,888
Financial Assets at FVOCI
Treasury notes/bonds 56,650,522,751 36,691,939,285
Investment in stocks 512,478 527,716
Restricted Funds 731,783,211 678,466,858
Financial Assets at FVPL
Investment in Local Equity Fund Manager 4,698,402,216 4,586,166,319
Restricted Funds 69,259,674 100,080,388
901,582,038,092 807,344,494,476
Less: CTF and TOLF* 1,039,478,416 979,520,150
Net Financial Assets exclusive of CTF and TOLF 900,542,559,676 806,364,974,326
*Contingency Trust Fund (CTF) and Trustee and Officers Liability Fund (TOLF)
**Restricted Funds are presented gross of withholding tax payable and trustee fee payable (Note 7)

Classification and Measurement of Financial Assets

The classification and measurement of financial assets are driven by the entity’s
business model for managing the financial assets and the contractual cash flow
characteristics of the financial assets. The classification and measurement of
financial assets are described below and in the succeeding pages.

The Fund initially measures a financial asset at its fair value plus or minus, for
an item not at an FVPL, transaction costs that are directly attributable to its own
acquisition or use.

i. Financial Assets at Amortized Cost

Financial assets are measured at amortized cost if both of the following

conditions are met:

 the asset is held within the Fund’s business model whose objective is to
hold financial assets in order to collect contractual cash flows (“held to
collect”); and
 the contractual terms of the instrument give rise, on specified dates, to
cash flows that are solely payments of principal and interest (SPPI) on
the principal amount outstanding.

After initial measurement, financial assets are subsequently measured at

amortized cost using effective interest (EIR) method, less allowance for
impairment losses. Amortized cost is calculated by taking into account any
discount or premium on acquisition that are an integral part of the effective
interest rate. The amortization is included in the “Service and Business
Income” section of SCI. Assets in this category are included in current

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 assets except for those with maturities greater than 12 months after
reporting period, which are classified as non-current assets.

ii. Financial Assets at FVOCI

The Fund accounts for financial assets at FVOCI if the assets meet the
following conditions:

 they are held under a business model whose objective is to hold to

collect the associated cash flows and sell (“hold to collect and sell”); and,
 the contractual terms of the financial assets give rise to cash flows that
are SPPI on the principal amount outstanding.

Financial assets at FVOCI includes equity and debt instruments, which are
not intended for trading in the short-term period of not more than 90 days
but may be sold in response to liquidity requirements or changes in market
conditions.

Investments in this category are subsequently measured at fair values. The

unrealized gains and losses arising from fair valuation of these investments
are excluded from reported income and are reported as Cumulative
Changes in Fair Value in the equity section of the Statement of Financial
Position (SFP). The effective yield component of debt securities, as well as
the impact of restatement of foreign currency-denominated debt securities,
are reported in the SCI.

The discount or premium shall be amortized using the effective interest

method over the expected life of the instrument which affects the interest
income and the carrying amount of the financial instrument. If an instrument
is purchased at a premium, the actual interest received shall be higher than
the interest income, the difference shall reduce the premium on the
instrument. However, if an instrument is purchased at a discount, the actual
interest received shall be lower than the interest income. In effect, at the
end of the schedule, the premium or discount shall be equal to zero and the
carrying value of the instrument shall be equal to the instrument’s face
value.

When the debt securities are disposed of, cumulative gains or losses
previously recognized in equity, under Other Comprehensive Income, are
recognized as trading and investment securities gains (losses) in the SCI.
Investments are included under non-current assets unless the Fund intends
to dispose of the investments within 12 months after the end of reporting
period.

iii. Financial Assets at FVPL

Financial assets at FVPL are subsequently measured at fair value. The

unrealized gains and losses, and dividend income are recognized directly in
the SCI.

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Reclassification of Financial Assets

Financial assets are reclassified when the Fund changes its business model for
managing financial assets.

Reclassification is applied prospectively and without restating any previously

recognized gains, losses or interests.

Derecognition of Financial Assets

Financial assets are derecognized when the contractual rights to the cash flows
from the financial asset expire, or when the Fund has transferred to another
party substantially all the risks and rewards of ownership of the financial asset.

The transfer of risks and rewards is evaluated by comparing the Fund’s

exposure, before and after the transfer, with the variability in the amounts and
timing of the net cash flows of the transferred asset. Risks and rewards are
considered significant if it is more than 50 per cent of ownership of financial
asset.

Impairment of Financial Assets

The Fund recognizes the amount that is required to adjust the loss allowance at
the reporting date to the amount that is required to be recognized in accordance
with PFRS 9.

On December 17, 2018, the Management Committee (ManCom) approved to

revise the Expected Loss Rate (ELR) for current and one to 30 days past due
(dpd) buckets to 0.45 per cent. The impairment rate was the result of the
assessment made by the Risk Management Task Force based on its Expected
Loss Model with probability of default (PD) and loss given default (LGD) as its
components which were both approved by the BOT. With the adoption of
Expected Credit Loss (ECL), the objective evidence or loss event is no longer a
trigger to recognize impairment loss, rather, future losses are factored in at trade
or commitment date.

On December 11, 2020, the BOT approved the adoption of Bangko Sentral ng
Pilipinas (BSP) rates on Allowance for Credit Losses (ACL) for housing
loans (HL) as follows:

 ELR Model for current to 30 dpd accounts as contained in the framework

approved by the BOT.

 Adopt impairment rates for 31 to 365 dpd and over one year to five years
pursuant to BSP Circular No. 1011 and BSP Memorandum No.
M-2020-061. This is to align the Fund’s ECL for these accounts with the
standards set by the BSP to address issues over conservatism which tend to
deprive members of additional benefits.

Effective December 2023, the impairment rate for accounts under the age
bucket of current to 30 dpd is lowered to 0.07 per cent.

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The Fund also adopted the complementary rate of the recovery rate based on
the Asset Pricing Model (APM) for HL accounts over five years past due
applying the following formula:

ACL Rate = 1 - recovery rate based on APM

The Fund reviews its financial assets periodically or upon incurrence of loss
events to assess whether the impairment provisioning is sufficient to cover credit
risks and absorb losses incurred on the loan portfolio and other risky assets, or
an impairment loss should be recognized or reversed in the SCI.

The Fund employed the following impairment rates on receivables depending on

the age of the loan:

Rate
(in per cent)
Mortgage/Sales Contract Receivables
Current 0.07
1 – 30 days past due 0.07
31 – 60 days past due 10.00
61 – 90 days past due 10.00
91 – 120 days past due 15.00
121 – 180 days past due 25.00
181 – 270 days past due 25.00
271 – 365 days past due 25.00
Over 1 year 50.00
Over 2 years 50.00
Over 3 years 50.00
Over 5 years 50.00
Referred to foreclosure 50.00
With extra-judicial foreclosure 50.00

Classification and Measurement of Financial Liabilities

Financial liabilities are initially measured at fair value, and, where applicable,
adjusted for transaction costs unless the Fund designated a financial liability at
FVPL.

The Fund’s financial liabilities presented in Note 14 include Accounts

Payable (AP)-Members Pag-IBIG I, Modified Pag-IBIG II (MP2),
Insurance/Reinsurance Premium Payable, AP STL Borrowers, Due to Officers
and Employees and Other Accounts Payable (AP), which are subsequently
measured at amortized cost.

Derecognition of Financial Liabilities

Financial Liabilities are derecognized in the SFP only when the obligations are
extinguished either through discharge, cancellation, or expiration. The
difference between the carrying amount of the financial liability extinguished or
transferred to another party and the consideration paid, including any non-cash
assets transferred, or liabilities assumed, is recognized in profit or loss.

17
Offsetting of Financial Instruments

Financial assets and financial liabilities are offset and the resulting net amount is
reported in the SFP when there is a legally enforceable right to offset the
recognized amounts and there is an intention to settle on a net basis or realize
the asset and settle the liability simultaneously.

Investments

Investments include Financial Assets at Amortized Cost, FVOCI and FVPL.

Included under this category are Treasury Notes/Bonds and Philippine Dollar
Denominated Bonds issued by the Bureau of the Treasury (BTr) and Republic of
the Philippines, Government Banks, and Philippine Corporations.

A regular way purchase or sale of financial assets is recognized and

derecognized by the Fund, as applicable, using settlement date accounting.
The method is applied consistently for all purchases and sales of financial
assets that belong to the same category of financial asset.

Investment in Bonds and Other Debt Instruments are carried at current market
value. Cost of Bonds and Other Debt Instruments sold are accounted for using
specific identification method.

Local Equity under Fund Managers (LEFM) consists of managed equity

investments which are carried at current market value. The market value of
investments is adjusted every end of the month and any increase or decrease
from valuation is recognized in the SCI.

Investment in stocks includes Philippine Long Distance Telephone (PLDT)

Company shares listed in the Philippine Stock Exchange (PSE) which are
carried at current market value. The market value of the stocks is adjusted
every end of the month. If the market value is more or less than the cost, the
difference is treated as unrealized gains (losses) on mark-to-market and is
presented in the equity portion of the SFP and as addition/reduction in the SCI.
Cost of stocks sold is computed using the weighted average cost method.

Other investments consist of short-term placements with maturities of 91 days

but not more than one year from the date of acquisition and are unrestricted as
to withdrawal and earns interest at the respective bank deposit rates.

Investment accounts are mapped and grouped to the most appropriate accounts
in the COA RCA and disclosed as Financial Assets in accordance with PFRS 9.

Receivables

Receivables are non-derivative financial assets with fixed or determinable

payments that are not quoted in an active market. They arise when the Fund
provides money, goods, or services directly to a debtor with no intention of
trading the receivable. Interest earned on such receivables is reported as
interest income.

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They are carried at book value, net of allowance for impairment losses, if any.
They are classified into current and non-current.

Current portion refers to the aggregate principal amortizations due for the entire
year succeeding the reporting year and those pertaining to the entire balance of
receivables in arrears, over three months.

Other Current Assets

a. Prepayments

Prepayments include amounts advanced/deposited for registration fees,

leases/rentals, supplies, software subscriptions, and insurance premiums of
the Fund’s property and equipment used in day-to-day operations. These
are carried at cost and are expected to be realized or consumed within
twelve months after the end of the reporting period.

b. Inventories Held for Consumption

Inventories are stated at the lower of cost or Net Realizable Value (NRV).
Cost is determined by using the First-In-First-Out (FIFO) method.

c. Inventories - Semi-Expendable Items

This includes tangible items which meet the definition and recognition
criteria of Property and Equipment (PE), but below the capitalization
threshold of P50,000 pursuant to COA Circular No. 2022-004, Guidelines on
the Implementation of Section 23 of the General Provisions of RA No.
11639 also known as the General Appropriations Act (GAA) for Fiscal Year
(FY) 2022 issued on May 31, 2022.

d. Restricted Funds are reserves of money that can only be used for specific
purposes. These are composed of Time Deposits - Local Currency and
Member’s Savings Reserve Fund (MSRF), Contingency Trust Fund and
Funds Held in Trust.

Non-Current Assets Held for Sale

Non-Current Assets Held for Sale (NCAHS) consists of Real and Other
Properties Acquired (ROPA) that the Fund intends to sell within one year from
the date of reclassification as held for sale. The Fund classifies an asset as
NCAHS if its carrying amount will be recovered principally through a sale
transaction rather than continuing use.

NCAHS is initially recognized at lower of carrying amounts immediately prior to

its classification as assets held for sale and fair value less cost to sell. The Fund
recognizes an impairment loss for any initial and subsequent write-down of the
asset to fair value less cost to sell. Gain on any subsequent increase in fair
value less cost to sell an asset is recognized to the extent of the cumulative
impairment loss previously recognized. NCAHS is not subject to depreciation.

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If the Fund has classified an asset as held for sale, but the criteria for it to be
recognized as held for sale are no longer satisfied, the Fund shall cease to
classify the asset as such. If the sale of the asset is extended beyond one year,
the extension of the period required to complete the sale on the asset does not
preclude an asset from being classified as held for sale if the delay is caused by
events or circumstances beyond the Fund’s control and there is sufficient
evidence that it remains committed to selling the asset.

Investment Property

Investment Property-ROPA (IP-ROPA), recognized and measured using the

cost model, consists of collaterals of cancelled Contracts to Sell (CTS) and
foreclosed properties with registered Certificate of Sale (COS), but still under the
redemption period, as well as those with titles already consolidated in favor of
the Fund.

IP-ROPA is reclassified to NCAHS upon payment of reservation fee, bid bond,

down payment, equity and other incidental expenses depending on the chosen
mode of payment and mode of disposal. They are derecognized from the books
upon full payment of contract price and execution of Deed of Absolute Sale
(DOAS) for cash purchase, upon execution of Deed of Conditional Sale (DCS)
for installment sale, and upon loan take out for HL.

Property and Equipment

The Fund adopted the cost model as its measurement policy for PE where the
entire class of PE is carried at cost less accumulated depreciation and
accumulated impairment loss, if any.

An item of PE is recognized as an asset if: (1) it is probable that future economic

benefits associated with the asset will flow to the Fund; and (2) the cost of the
item can be measured reliably. Future economic benefits occur when the risks
and rewards of the asset’s ownership have passed to the Fund and the asset
will be used in its operation for more than one year from the date of issuance of
Certificate of Acceptance or Receiving and Inspection Report.

PE is initially recognized at cost, which is its cash price equivalent at acquisition

date. The initial cost of the asset includes its purchase price, including import
duties, if any, and non-refundable purchase taxes after deducting trade
discounts, trade-in discounts and rebates, any cost directly attributable to
bringing the asset to the location and condition necessary for it to operate in the
manner intended by the Fund, and the initial estimate of the costs of dismantling
and removing the item as well as restoring the site on which it is located.

The cost of an item of PE shall exclude cost of opening a new facility, cost of
introducing a new product or service, cost of doing business in a new location
and administrative and other general overhead costs.

Other expenditures subsequent to acquisition of PE, such as repairs and

maintenance and relocation, are charged to expense as incurred.

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Replacement of parts shall be recognized as PE if the recognition criteria are
met while cost of the parts replaced should be derecognized.

Depreciation is calculated on straight-line basis over the estimated and/or

remaining useful life of the asset. Residual value of PE is set at ten per cent of
the acquisition cost. As applicable, PE such as Leased Asset Improvements
shall be depreciated over the useful life of the improvement or the lease term,
whichever is shorter. The lease term would include any renewal option periods
where extension of the lease is expected. Method of depreciation, useful life
and residual value is reviewed at least every financial year-end to assess
whether there has been significant change in expected pattern of consumption
of future economic benefits embodied in the asset or expectations differ from
previous estimates. Any change is accounted for as change in accounting
estimates.

The estimated useful life of PE are as follows:

Land Improvements 10 years or the useful life

of the improvement if
significantly shorter
Leased Assets Improvements
Land 10
Building, Mixed 40
Building, Concrete 50
Building and Other Structures
Mixed 40
Concrete 50
Machinery and Equipment
Office Equipment 5
Information and Communication Technology Equipment
Communication Equipment 5
Medical Equipment 10
Printing Equipment 5
Sports Equipment 10
Technical and Scientific Equipment 5
Other Machinery and Equipment 5
Transportation Equipment
Motor Vehicles 7
Other Transportation Equipment 10
Furniture, Fixtures and Books
Furniture and Fixtures 10
Books 5
Other Property and Equipment 5

When an item of PE is sold or retired, its cost and related accumulated

depreciation and accumulated impairment loss, if any, are dropped from the
books, and any gain or loss resulting from the disposal is reported in the SCI.

Construction in Progress (CIP)

CIP represents the cost of work performed by the Fund or a Contractor in the
construction of a PE.

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Construction or developmental costs are to be recognized as CIP when they
meet the asset recognition and capitalization criteria with threshold of P50,000
and above. CIP includes costs that are directly related or allocated to the
construction or development of an asset and are to be recognized at the time
the related construction activity is performed. Accordingly, materials purchased
for use in construction but not used at the reporting date are not included in the
cost of work performed to date.

When the PE is constructed by a hired contractor, all expenses incurred

including interests, license fees and any directly attributable cost to the
construction shall be capitalized and taken up as CIP upon receipt of billing from
the contractor.

However, if the PE is to be constructed by the Fund, the allocation of cost may

include the following:

1. Cost of materials arising from direct purchases from suppliers or allo-

cated based on appropriate costing;
2. Labor costs allocated on the basis of time spent on the project; and
3. Allocated overhead costs which are proportionately distributed on an
area-based costing.

Although CIP is reported as part of PE, it shall not be depreciated or subjected

to revaluation requirements until such time that the relevant assets are
completed and put into operational use.

Leases

The Fund accounts for its leases as follows:

a. The Fund as a Lessor

There are no substantial changes in the accounting requirements as a lessor
under PFRS 16. Thus, the Fund as a lessor continues to classify its leases
as operating lease. Rentals received are recognized as income on a
straight-line basis over the lease term. Assets held for operating leases are
presented in Note 9.

The Fund recognizes costs, including depreciation, incurred in earning the

lease income as an expense.

Initial direct costs incurred in obtaining an operating lease are added to the
carrying amount of the underlying asset and recognize those costs as an
expense over the lease term on the same basis as the lease income.

Lease Modification

The Fund accounts for a modification to an operating lease as a new lease

from the effective date of the modification, considering any prepaid or
accrued lease payments relating to the original lease as part of the lease
payments for the new lease.

22
b. The Fund as a Lessee

Accounting for Leases in Accordance with PRFS 16

At the inception date, the Fund evaluates whether a contract is, or contains,
a lease. A contract is, or contains, a lease if the contract conveys the right
to control the use of an identified asset for a period of time in exchange for
consideration.

At lease commencement date, the Fund recognizes a right-of-use (ROU) as-

set and a lease liability in its SFP. The ROU asset is measured at cost,
which comprises the initial measurement of the lease liability, any lease pay-
ments made at or before the commencement date (net of any incentives re-
ceived), any initial direct costs incurred by the Fund, and an estimate of
costs to dismantle and remove the underlying asset at the end of the lease.
ROU asset is subsequently measured at cost less any accumulated depreci-
ation and accumulated impairment losses, subject to adjustment for any re-
measurement of the lease liability.

If the lease transfers ownership of the underlying asset to the Fund by the
end of the lease term or if the cost reflects that the Fund will exercise a pur-
chase option, the Fund shall depreciate the ROU asset from the commence-
ment date to the end of the useful life of the underlying asset.

Otherwise, the Fund shall depreciate the ROU asset from the commence-
ment date to the earlier of the end of the useful life of the ROU asset or the
end of the lease term.

On the other hand, the Fund measures the lease liability at the present value
of the lease payments unpaid at the commencement date discounted using
the interest rate implicit in the lease if that rate is readily available. Other-
wise, the base rate of the BOT’s approved Full Risk Based-Pricing Model is
used.

Lease payments include fixed payments less any lease incentive receivable,
variable lease payments based on an index or a rate initially measured using
the index or rate as at the commencement date, amounts expected to be
payable by the Fund under residual value guarantees, the exercise price of a
purchase option if the Fund is reasonably certain to exercise that option and
payments of penalties for terminating the lease if the lease term reflects the
lessee exercising an option to terminate the lease.

Subsequently, the Fund measures the lease liability by:

a. increasing the carrying amount to reflect interest on the lease liability;

b. reducing the carrying amount to reflect the lease payments made; and
c. remeasuring the carrying amount to reflect any reassessment or lease
modifications.

After the commencement date, the Fund recognizes the interest on the
lease liability and variable lease payments not included in the measurement
of the lease liability in the period in which the event or condition that triggers

23
 those payments occur in its profit or loss, unless the costs are included in
the carrying amount of another asset applying other applicable Standards.

When the lease liability is remeasured, the corresponding adjustment is re-

flected in the ROU asset, or profit or loss if the ROU asset is already re-
duced to zero.

The Fund has elected to account for short-term leases and low-value leases
using the practical expedients. The payments associated with these leases
are recognized as an expense on a straight-line basis over the lease term.

Intangibles

Information Technology Software costs are capitalized on the basis of the cost
incurred to acquire and bring to use the specific software. These costs, net of
residual value, are amortized over its useful life on a straight-line basis. The
useful life is based on the nature of the asset acquired, which shall not exceed
the period of contractual or other legal rights over the asset.

Maintenance costs associated with maintaining the computer software program

is recognized as expense when incurred.

Provisions and contingencies

Provisions are recognized when present obligations will probably lead to an

outflow of economic resources and these can be estimated reliably even if the
timing or amount of the outflow may still be uncertain. A present obligation
arises from the presence of a legal or constructive commitment that has resulted
from past events.

The amount recognized as a provision is the best estimate of the expenditure

required to settle the present obligation at the SFP date. The best estimate is
the amount that the Fund would rationally pay to settle the obligation at reporting
date or to transfer it to a third party at that time.

The Fund measures provisions as follows:

 Where the provision being measured involves a large population of items,

the obligation is estimated by weighing all possible outcomes by their
associated possibilities.
 The risks and uncertainties that inevitably surround many events and
circumstances shall be taken into account in reaching the best estimate of a
provision.
 Where the effect of time value of money is material, the amount of provision
shall be the present value of expenditures expected to be required to settle
the obligation.

On the other hand, any reimbursement that the Fund can be virtually certain to
collect from a third party with respect to the obligation is recognized as a
separate asset not exceeding the amount of the related provision.

24
Contingent liabilities are not recognized but are disclosed unless the possibility
of an outflow of assets embodying economic benefits is remote. Similarly,
probable inflows of economic benefits that do not yet meet the recognition
criteria of an asset are considered contingent assets, hence, are not recognized
in the financial statements.

Members’ equity

Members’ equity comprises of members’ contributions, employers’ counterpart

for employed members and the accumulated dividends of the members as
owners of Pag-IBIG Fund. It is credited for contributions collected and share in
the declared dividends and debited for set-up of AP for membership matured as
of year-end and maturing within one year from SFP date (Note 14), offsetting of
member’s short-term or HL and withdrawal of savings.

Interest income recognition

Interest income on HL is recognized on accrual basis at month end. Interest on

Calamity Loans and interest on Multi-Purpose Loans (MPL) are computed on a
daily basis but recorded at month end. Recording of accrual stops once an
account is over 90 dpd.

a. Interest on MPL/Calamity Loans

The policies adopted in setting the interest rates on short-term loans (STL)
are set out as follows:

Operative HDMF Interest Rate

Dates Circular No. Description (in per cent)
August 10, 449 Modified Guidelines on 5.95
2021 the Pag-IBIG Fund
Calamity Loan Program

August 5, 448 Modified Guidelines on 10.50

2021 the Pag-IBIG Fund Multi-
Purpose Loan Program

June 24, 445 Amended Guidelines 10.50

2021 Implementing the Pag-
IBIG Health and
Education Loan
Programs (Pag-IBIG
HELPs)

The Pag-IBIG HELPs, MPL and Calamity Loan Programs are treated as
separate and distinct from each other.

b. Interest on wholesale loan

Effective June 30, 2022, the nominal interest rates for Wholesale Loan (WL)
Program are as follows:

25
 Product Rate (in per cent)
1-Year Fixing 5.875
2-Year Fixing 6.000
3-Year Fixing 6.125

c. Interest on housing loans

Nominal interest rates for the End-User Home Financing (EUHF) Program
for CY 2023 are as follows:

Rate (in per cent)

Fixing Period January 1, 2023 July 1, 2023 to
to June 30, 2023 December 31, 2023
End-User Home Financing (Regular)
1-year Fixing 5.750 5.750
3-year Fixing 6.375 6.250
5-year Fixing 6.625 6.500
10-year Fixing 7.375 7.125
15-year Fixing 8.000 7.750
20-year Fixing 8.625 8.500
25-year Fixing 9.375 9.125
30-year Fixing 10.000 9.750

For end-user loans outstanding prior to January 1, 2023, the prevailing

interest rates are as follows:

Rate (in per cent)

Fixing Period Jan 1, 2022 to Jan 1, 2021 to Jul 1, 2020 to
Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
End-User Home Financing (Regular)
1-year Fixing 5.750 5.750 5.375
3-year Fixing 6.375 6.250 6.125
5-year Fixing 6.625 6.500 6.500
10-year Fixing 7.375 7.250 7.125
15-year Fixing 8.000 7.875 7.750
20-year Fixing 8.625 8.500 8.375
25-year Fixing 9.375 9.125 9.125
30-year Fixing 10.000 9.875 9.750

Foreign currency transactions

Foreign currency transactions are recorded based on the exchange rate on the
date of transaction. Exchange rate difference arising from the settlement of
monetary items or from reporting of foreign currency monetary items at rates
other than the rate applied in recording the transaction or the rate adopted in
previous financial statements are reported in the SCI. US Dollar-denominated
transactions are initially translated into the functional currency using the Spot
Exchange Rate (SER) between the foreign currency and the functional currency
on the date of transaction. SER is the exchange rate for the immediate delivery
based on the weighted average rate of the previous business day as published
by Bankers Association of the Philippines (BAP). All other foreign currency-

26
denominated transactions are translated to US Dollar currency first using the
exchange rates published by Reuters before translating the same to Philippine
Peso.

Members’ Savings Reserve Fund

MSRF was established to ensure efficient liquidity management for benefit

claims and return of members’ equity upon maturity. This is pursuant to Section
1(k), Rule III of the IRR and Section 4 (j) of the HDMF Charter, RA No. 9679.

The MSRF is covered by investment portfolio.

Systems updates

a. Provident Fund Management System (PFMS)

The TAS continues with the clean-up activities until the non-migratable
accounts that remained in the old system (legacy system) are migrated to
the PFMS. After exhausting all efforts to clean up the accounts in the old
system, any remaining non-migratable accounts shall be disposed of in
accordance with business rules/policies setting the threshold for such.

As at December 31, 2023, PFMS data migration is at 93.73 per cent. The
target date for the completion of migration activities is on June 2024.

b. ROPA System

Migrated ROPA accounts were assigned a unique identification number

referred to as ROPA ID. Such ID is utilized to extract all related
transactions that occurred on a certain property which is far more efficient
compared to the previous system. As at December 31, 2023, 99.70 per
cent of the 63,983 accounts has been migrated to the system.

Changes in accounting policies and disclosures

Adoption of new and amended standards and interpretations

a. Effective in CY 2023 that are relevant to the Fund:

i. Amendments to PAS 8, Accounting Policies, Changes in Accounting

Estimates and Errors – Definition of Accounting Estimates. The
amendments introduced a new definition of accounting estimates
which are monetary amounts in the financial statements that are
subject to measurement uncertainty. It also clarifies that the effects on
an accounting estimate of a change in an input or a change in a
measurement technique are changes in accounting estimates if they
do not result from the correction of prior period errors. Further, a
change in accounting estimate that results from new information or
new developments is not a correction of an error.

27
 ii. Amendments to PAS 1 and PFRS Practice Statement 2 – Disclosure
of Accounting Policies. The amendments replaced the requirement to
disclose the significant accounting policies with the requirement to
disclose the material accounting policy information. The amendments
also include guidance to help entities apply the concept of materiality
in making decisions about accounting policy disclosures. The
application of these amendments is reflected in the Fund’s financial
statements under Notes 2 and 3.

b. New Standards, Amendments and Interpretations Not Yet Effective

Other Standards and Amendments that are not yet effective include:

i. Amendments to PFRS 16, Leases – Lease Liability in a Sale and

Leaseback (effective January 1, 2024). The amendments require the
seller-lessee to account for variable lease payments on initial
recognition when measuring a lease liability arising from a sale-and-
leaseback transaction. After the commencement date, the seller-
lessee applies the general requirements for subsequent accounting of
the lease liability in such that no gain or loss shall be recognized in
relation to the right of use retained by the seller-lessee.

ii. Amendments to PAS 1, Presentation of Financial Statements –

Classification of Liabilities as Current or Non-current and Non-current
Liabilities with Covenants (effective January 1, 2024). The
amendments refine the information an entity provides when its right to
defer settlement of a liability for at least twelve months is subject to
compliance with covenants. Covenants, which the entity must comply
after the reporting date, do not affect a liability’s classification.
However, entities shall disclose information when non-current
liabilities are subject to future covenants in order to help users
understand the risk that such liabilities could become repayable within
twelve months after the reporting date.

iii. Amendments to PAS 7, Statement of Cash Flows and PFRS 7,

Financial Instruments: Disclosures – Supplier Finance Arrangements
(effective January 1, 2024). The amendments require additional
disclosures and signposts within existing disclosure requirements
asking entities to provide qualitative and quantitative information about
supplier finance arrangements, such as terms and conditions –
including, for instance, extended payment terms and security or
guarantees provided.

Under the prevailing circumstances, the Fund is currently assessing the

applicability and the financial impact, which includes, among others, the material
effect of the above-stated new and amended standards on its financial
statements.

28
3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES AND
ASSUMPTIONS

The Fund’s financial statements, prepared in accordance with PFRS, require

management to make judgments and estimates that affect the amounts reported
in the financial statements and related notes. Judgments, estimates and
assumptions are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be
reasonable under the circumstances.

Judgments

Determination of lease term – The Fund as a lessee

In determining the lease term, the Fund considers all relevant facts and
circumstances that create an economic incentive to exercise an option to extend
a lease or not to exercise an option to terminate a lease.

The Fund reassesses whether it is reasonably certain to exercise an extension

option, or not to exercise a termination option, upon the occurrence of either a
significant event or a significant change in circumstances that: (1) is within the
control of the Fund; and (2) affects whether the Fund is reasonably certain to
exercise an option not previously included in its determination of the lease term,
or not to exercise an option previously included in its determination of the lease
term.

The lease term is revised if there is a change in the non-cancellable period of a

lease.

Property lease classification - The Fund as a lessor

The Fund has entered into various lease agreements as a lessor. The
management has exercised significant judgment to distinguish each lease
agreement as either an operating or finance lease by looking at the transfer or
retention of significant risks and rewards of the properties covered by the
agreements.

Non-current Assets Held for Sale

The Fund classifies its acquired properties intended to be sold within one year
from the date of reclassification as NCAHS if the carrying amount will be
recovered principally through a sale transaction rather than continuing use.

NCAHS is measured at the lower of carrying amount and fair value less cost to
sell.

Estimates and assumptions

Estimation of fair value of investment properties

IP-ROPA are initially measured at fair value or appraised value, net of discount
rate based on the APM, as the deemed cost at foreclosure date and
subsequently valued using the cost model.

29
Based on the cost model approach, depreciable amount (cost, net of residual
value) of ROPA is allocated using straight line method over the remaining useful
life as disclosed in the Appraisal Report, but not to exceed the prescribed life
span as follows:

Type Estimated Useful Life

10 years or the useful life of the
Land Improvements improvement if significantly
shorter
Buildings and Other Structure - Mixed 40 years
Buildings and Other Structure - Concrete 50 years

On November 24, 2017, the ManCom approved the use of the APM as a
valuation methodology to determine the discount rate, which will be the basis for
the initial recognition of the ROPA in the Fund’s books of accounts.

IP-ROPA is presented net of Allowance for Impairment Losses and Accumulated

Depreciation as shown in Note 9.

Impairment of non-financial assets

The Fund’s non-financial assets are assessed to determine whether there is an

indication of impairment or an impairment previously recognized may no longer
exist. When such indication exists, the Fund makes an estimate of the
recoverable amount, which is the higher of an asset’s fair value less cost to sell
and value in use.

When the recoverable amount of an asset is less than the carrying amount, the
asset is considered impaired and is reduced to its recoverable amount.
Impairment loss is immediately recognized in profit and loss.

For investment properties, appraisal is conducted every two years. Further,

impairment loss is recognized when there is:

 a decline in the market value of more than the expected decrease from the
passage of time and normal use;
 an evidence of physical damage due to natural calamities and other similar
catastrophes; or
 a reduction in the estimated useful life due to adverse events in the
property’s location.

Investment properties identified as hard to sell as well as properties declared

condemned in the interest of health, safety or security by the City Government
and/or authorized agency shall be fully provided with allowance for impairment.

In case there is an indication that impairment loss has decreased in the

subsequent period, the recoverable amount is re-estimated and the allowance
for impairment is reversed. However, the increase in the carrying amount due to
said reversal should not exceed the depreciated historical cost of the property
assuming the impairment was not previously recognized.

30
 Other intangible assets with indefinite useful lives, PAS 36 Impairment of Assets
requires that an impairment review be performed when certain impairment
indicators are present.

Fair value measurement of financial instruments

Management applies valuation techniques to determine the fair value of financial

instruments where active market quotes are not available. Valuation techniques
are used to determine fair values which are validated and periodically reviewed
by the management.

The carrying amounts of the Fund’s financial assets at FVPL and financial
assets at FVOCI are disclosed in Notes 5 and 7.

Determination of the appropriate discount rate in measuring lease liabilities

The Fund measures its lease liabilities at present value of the lease payments
unpaid at the commencement date. The lease payments were discounted using
the interest rate implicit in the lease if readily available or the Fund’s incremental
borrowing rate. The said borrowing rate shall be the base rate of the Fund’s
approved Full Risk-Based Pricing Model. The base rate is the higher of funding
cost and market.

4. CASH AND CASH EQUIVALENTS

This account is composed of the following:

2023 2022
Cash on hand 413,899,567 347,301,368
Cash in bank - local currency 3,844,091,943 3,544,307,247
Cash in bank - foreign currency 7,459,770 20,086,025
Cash equivalents 11,772,990 4,009,765,409
4,277,224,270 7,921,460,049

Cash on hand includes collections with the cashiers for deposit to the Authorized
Government Depository Banks (AGDBs) on the next banking day.

Bank deposits in foreign currencies at December 31, 2023 were revalued based
on the following rates: BAP Weighted Average Rate US$1 = P55.418 and
Reuters’ CAD$1 = US$0.756 for third currency conversion from Canadian to US
Dollar. Interest rates for cash equivalents with maturity of 90 days and below
range from 0.35 to 6.00 per cent for local currency and 0.05 to 4.50 per cent for
foreign currency.

Total interest income from local and foreign currency denominated accounts in
the various depository banks of the Fund and Time Deposit - Local and Foreign
Currency amounted to P88.218 million and P246.411 million for CY 2023 and
CY 2022, respectively.

31
5. INVESTMENTS

This account consists of investment in treasury notes/bonds and equity

securities which includes the following:

2023 2022
Financial assets at FVOCI 56,651,035,229 36,692,467,001
Investment securities at amortized cost 36,496,671,902 38,790,338,754
Financial assets at FVPL 4,698,402,216 4,586,166,319
Investment in time deposits 0 2,112,519,000
97,846,109,347 82,181,491,074

Less current portion 63,849,437,445 50,771,279,175

33,996,671,902 31,410,211,899

Financial Assets at FVOCI

FVOCI is composed of investment in bonds and other debt instruments and

investment in stocks as follows:

2023 2022
Treasury notes/bonds 56,650,522,751 36,691,939,285
Investment in stocks 512,478 527,716
56,651,035,229 36,692,467,001

Movement in FVOCI is as follows:

2023 2022
Balances at beginning of year 36,692,467,001 24,238,533,945
Placements 24,825,634,974 15,798,985,097
Disposals (9,157,946,491) (1,104,395,949)
Mark-to-market gains (losses) 953,883,931 (2,211,532,463)
Reclassifications/Adjustments 3,336,995,814 (29,123,629)
Balances at end of year 56,651,035,229 36,692,467,001

Included in this account group are treasury notes/bonds for MSRF amounting to
P56.651 billion and P28.251 billion in CY 2023 and CY 2022, respectively.

Interest rates for investment in bonds and other debt instruments range from
3.500 to 8.625 per cent with maturity dates from CYs 2024 to 2040. Interest
income from Investments at FVOCI amounted to P2.843 billion and P1.270
billion for CY 2023 and CY 2022, respectively.

Investment in Stocks includes PLDT common shares converted from PLDT

preferred shares.

Investment Securities at Amortized Cost

This account is composed of bonds and other debt instruments issued by the
National Government through the BTr and Domestic Private Corporations.

32
Details are as follows:

2023 2022
Treasury notes/bonds 26,599,066,333 27,500,806,227
Dollar denominated bond 5,512,443,121 5,553,247,598
Corporate bonds 4,385,162,448 5,736,284,929
36,496,671,902 38,790,338,754

Movement in Investment Securities at Amortized Cost is as follows:

2023 2022
Balances at beginning of year 38,790,338,754 21,007,049,568
Placements 2,500,000,000 17,803,702,278
Disposals (1,350,000,000) (500,000,000)
Foreign exchange gains (losses) (39,775,452) 481,484,072
Reclassifications/Adjustments (3,403,891,400) (1,897,164)
Balances at end of year 36,496,671,902 38,790,338,754

Interest rates for investment in bonds and other debt instruments range from
1.375 to 7.125 per cent with maturity dates from CYs 2024 to 2042. Interest
income from Investments at Amortized Cost amounted to P1.598 billion and
P1.574 billion for CY 2023 and CY 2022, respectively.

Financial Assets Designated at Fair Value Through Profit or Loss

The Fund outsourced, through Public Bidding-Consultancy Services, the
management of its P5 billion equity investments to five well-established,
technically, legally, and financially competent and qualified fund managers
taking into consideration the requirements for safety, liquidity, and growth. As
part of risk mitigating measures, the P5 billion total equity portfolio is equally
divided into five lots amounting to P1 billion each. The BOT, in its meeting on
July 5, 2018, approved the Terms of Reference and Budget for the Contract for
the Engagement of LEFMs under Board Resolution No. 3293, series of 2018.
Last January 25, 2019, the Fund started investing in LEFMs.

Details of investments are as follows:

Market Value
2023 2022
Philequity Management, Inc. 1,025,681,128 998,372,405
BPI Asset Management and Trust Corp. 978,041,273 959,524,542
Metropolitan Bank and Trust Company 969,268,267 949,181,458
BDO Unibank, Inc. – Trust and Investments Group 917,201,163 882,255,414
BPI Asset Management and Trust Corp. II 808,210,385 0
ATRAM Trust Corporation 0 796,832,500
4,698,402,216 4,586,166,319

To maximize the growth potential of the Fund’s equity investments and to

encourage active competition among the LEFMs, the Terms of Reference (TOR)

33
 provides that after the end of the third year of the five-year contract, the least
performing LEFM will be dropped and replaced through a new bidding process.
Based on the Fund’s performance evaluation of the LEFM from 2019 to 2022,
ATRAM was consistently identified as the least performing. Consequently, the
Fund issued termination of contract with the former and received P6.212 million
and P15.831 million in 2023 and 2022, respectively, representing the cash
component of the portfolio.

On March 10, 2023, the management of equities handled by ATRAM was

transferred to BPI Asset Management and Trust Corporation, the winning
bidder.

Net gain of P118.448 million was recognized in 2023, while net loss of P295.902
million was reported in 2022.

Investment in Time Deposits

This account consists of Investment in Time Deposits, which is a local currency,

fixed-term placement for a period of 91 days but less than one year and earns
interest from 0.80 to 1.85 per cent. Balance as at December 31, 2023 and 2022
is at nil and P2.113 billion, respectively.

6. RECEIVABLES

This account consists of the following:

2023 2022
Mortgage/sales contracts
receivable 754,948,715,722 676,096,250,395
Loans receivable 71,652,281,686 65,473,324,166
Interests receivable 7,131,515,150 6,225,723,031
Accounts receivable 1,375,895,172 1,339,125,952
Other receivables 4,038,512,917 4,570,218,236
839,146,920,647 753,704,641,780
Allowance for impairment loss (42,142,694,588) (42,175,677,561)
797,004,226,059 711,528,964,219
Less current portion 217,690,073,418 235,606,356,451
579,314,152,641 475,922,607,768

Mortgage/Sales Contracts Receivable (M/SCR) represents loans to Pag-IBIG

members that are backed-up by Real Estate Mortgage (REM)/CTS under the
various home lending programs of the Fund. The current M/SCR of P191.593
billion and P217.703 billion for years 2023 and 2022, respectively, include past
due accounts, zero to three months in arrears of P76.196 billion and P72.545
billion, respectively, which are immediately due and demandable.

Loans Receivable (LR) account consists of receivables from STL, Calamity

Loans and Other Government Corporations. The current LR of P46.268 billion
and P41.675 billion for years 2023 and 2022, respectively, include past due
accounts, zero to three months in arrears, of P16.771 billion and P15.185 billion

34
for CYs 2023 and 2022, respectively, which are immediately due and
demandable.
Interest Receivable includes interest earned by the Fund on its investments and
loans receivables but not yet collected as at end of year. The Fund recognizes
interest receivable on loans for up to three months of delinquency for accounts
with monthly amortization schedule. For accounts with quarterly, semi-annual,
and annual amortization schedule, accrual ceases on the first month after due
date.

Interests receivable for Time Deposits and Investment in Bonds and Other
Instruments - MSRF amounted to P807.243 million and P661.553 million for CY
2023 and CY 2022, respectively (Notes 5 and 7).

Accounts Receivable (AR) consists of:

a. AR-Developers are receivables representing the amount due from

developers for various financial transactions such as but not limited to (a)
any outstanding balance of delinquent accounts that are for buyback; and
(b) amount deducted from the take-out proceeds to cover the actual
expenses for the conversion of the account is insufficient.

b. AR-Borrowers consists of receivables from HL borrowers for advances

made by the Fund for the renewal of insurance coverage of delinquent
accounts and remaining balance of STL after deducting their Total
Accumulated Value (TAV) upon withdrawal or claim.

c. AR-Collecting Agents/Banks (CAs/CBs) are receivables from CAs/CBs

representing collection of Members' Contributions and/or loan amortizations
due for remittance to the Fund, which are within the float period of three to
five working days as embodied in the collection agreements.
d. AR-Others includes, among others, the P0.583 million remaining balance
of unremitted overseas collections from a former employee pursuant to
Notice of Finality of Decision issued by the COA on January 18, 2011.

Other receivables consist of the following:

2023 2022
Other receivables - Bayanihan Act 3,779,366,748 4,305,248,382
Insurance claims receivable 188,169,809 175,535,401
Due from officers and employees 37,939,324 47,944,041
Receivables - disallowances/charges 908,895 908,895
Others 32,128,141 40,581,517
4,038,512,917 4,570,218,236

Other Receivables - Bayanihan Act consists of accrued interests on Short Term

Installments (STI), Institutional Loans (IL), HL and STL accounts that fall due
within the Modified/Enhanced Community Quarantine (M/ECQ) period covered
by the grant of mandatory grace period under Bayanihan I and Bayanihan II.
Included in these accounts are non-interest bearing restructured amount relating
to unpaid accrued interest within the grace period under the Bayanihan I and II.

35
 The restructured amount, which comprises of total arrearages, foreclosure
expenses, unpaid balances, and any amount advanced by the Fund, are interest
bearing and lodged to its corresponding receivable account.

Insurance Claims Receivable pertains to the amount due from the Fund’s
insurance provider for damages and other related claims.

Due from Officers and Employees includes zero-interest loans amounting to

P30.949 million availed through the HDMF Car Plan. The loans are covered by
promissory notes granted to qualified officers of the Fund.

Other Receivables – Others consists mainly of receivables from separated

employees, negative TAV, and Employees’ Provident Plan (EPP) for their share
in rent and utilities advanced by the Fund.

Movements in Allowance for Impairment Loss of receivables are as follows:

Recognition of
Balance Additional Im- Recovery from ROPA & other Balance
January 1, 2023 pairment Loss Impairment Loss adjustments December 31, 2023
MCR/SCRs 39,788,836,608 9,494,313,105 2,513,715,677 6,908,120,662 39,861,313,374
ARs 416,436,012 3,534,907 52,224,807 14,045,607 353,700,505
Int. Rec. 652,504,247 203,768,541 11,390,000 230,153,731 614,729,057
LR 1,188,314,907 18,072,330 23,959,800 15,414,023 1,167,013,414
Other Receivables 129,585,787 2,048,166 20,624,859 (34,929,144) 145,938,238
42,175,677,561 9,721,737,049 2,621,915,143 7,132,804,879 42,142,694,588

7. OTHER CURRENT ASSETS

This consists of the following:

2023 2022
Restricted funds 2,454,194,542 5,712,164,785
Prepayments 318,148,174 289,518,047
Inventories - held for consumption 97,428,498 79,891,895
Inventories - semi-expendable items 11,740,692 11,533,142
2,881,511,906 6,093,107,869

Restricted funds consist of reserves of money that can only be used for specific
purposes:

2023 2022
Time Deposit - Local Currency
and MSRF 1,415,000,000 4,733,058,984
Contingency Trust Fund (CTF) 772,782,501 729,277,240
Funds Held in Trust - TOLF 266,412,041 249,828,561
2,454,194,542 5,712,164,785

a. Time Deposit - Local Currency and MSRF

On April 10, 2015, the Fund issued AMO No. 2015-005 to cover the set-up
and operations of the MSRF. The MSRF was established as a liquidity

36
 provision with funds restricted designated for the settlement of maturing
members’ contributions.

On June 30, 2020, part of Investment in Government Securities Debt

Instruments classified as MSRF were sold, the proceeds of which were
reinvested in government banks as Time Deposit - Local Currency for less
than one year to ensure efficient liquidity management for benefit claims.

Aside from the above Time Deposits, this MSRF also includes designated
investments in treasury notes/bonds (Note 5), which can be used to cover
the matured and maturing claims.

b. A life and non-life insurance coverage as CTF1 and CTF2 were established
to cover the Mortgage Redemption Insurance (MRI)/Sales Redemption
Insurance (SRI) and Fire and Allied Perils Insurance (FAPI) of loan releases
of the Fund and pertinent collaterals for the loans. Initial set-up of CTF1 and
CTF2 was at P890.970 million and P90.371 million, respectively.

As an interim measure, the monies collected from the borrowers for

MRI/SRI premium shall be placed in the trust fund administered by a trustee
bank and all claims relating to the same shall be paid out of the fund.

On October 28, 2014, the Fund formally entered into brokerage agreement
with the new insurance, for yearly renewable term MRI/SRI coverage of HL
borrowers starting November 1, 2014, effectively terminating CTF1. Based
on the Fund’s Board approval, the P523.801 million remaining balance as at
December 31, 2016, shall be distributed among the active HL borrowers,
after settlement of all claims covered by the interim period.

The Fund formally entered anew into brokerage agreement with the same
insurance provider, the winning bidder, on January 11, 2018, for a five-year
non-life insurance coverage of insured property starting January 12, 2018,
effectively terminating CTF2.

As at June 30, 2019, the balance of CTF2 before distribution/liquidation

amounted to P554.598 million.

On July 8, 2019, the ManCom approved the liquidation of CTF2, which

includes the withdrawal of the funds to be distributed to the borrowers and
only the amount of P137 million earmarked for the alleged claim of HDMF
Non-Life Insurance Pool should be left in the trust fund account. This
caused the major decrease in restricted fund in 2019.

On October 30, 2019, the Fund renewed its brokerage agreement for
MRI/SRI coverage of HL borrowers for a period of five years beginning
November 1, 2019.

As at December 31, 2023, the CTF1 and CTF2 accounts amounted to

P622.317 million and P150.466 million, respectively. Breakdown is as
follows:

37
 2023 2022
Deposit in Banks 42,726,475 44,494,367
Due from BSP 131,640,369 123,776,369
Government Securities
FVOCI 598,645,947 525,142,394
FVPL 0 36,228,434
Total 773,012,791 729,641,564
Less:
Withholding Tax Payable (108,428) (249,355)
Trustee Fee Payable (121,862) (114,969)
772,782,501 729,277,240

c. Funds Held in Trust - TOLF was created and established on May 8, 2014,
pursuant to and in compliance with the requirements of Governance
Commission for GOCCs (GCG) Memorandum Circular (MC) No. 2012-10
(Re-issued). Its objective is to provide the Fund, the members of its
governing board and its officers, the means to pursue their fiduciary duties
and obligations to always act in the best interest of the Fund and with
utmost good faith. It allows them the proper recovery of the costs of
litigation and judgment liability imposed on them when they are sued on
matters within their official functions and capacity and on matters where
business judgment has been exercised in good faith.

A Trust Fund Committee composed of officers of the Fund headed by the

Chief Executive Officer was constituted, primarily to oversee the HDMF
TOLF. A government financial institution was also constituted as TOLF
Trustee pursuant to Item V of the aforementioned GCG MC.

Initially set up at P244 million, the Committee shall replenish the trust fund
in case usage thereof at any given time exceeds 20 per cent of the initial
amount. As at December 31, 2023, the balance of TOLF is at P266.412
million, with a reported income of P13.092 million, expenses of P1.154
million and net unrealized gain on FVOCI of P4.645 million.

Breakdown of TOLF is as follows:

2023 2022
Deposit in Banks 63,717,389 32,641,939
Debt and Equity Securities 61,654,105 56,316,202
Government Securities
FVOCI 133,137,264 153,324,464
FVPL 7,605,569 7,535,752
Other Assets 351,298 60,229
Total 266,465,625 249,878,586
Less:
Withholding Tax Payable (11,249) (10,786)
Trustee Fee Payable (42,335) (39,239)
266,412,041 249,828,561

Bulk of the prepayments pertains to prepaid subscriptions, prepaid supplies and

other prepaid expenses.

38
 Prepaid supplies amounting to P11.165 million and P9.945 million for CY 2023
and CY 2022, respectively, are purchases of office supplies for reclassification
to specific supplies inventory account upon delivery of related items.

Other prepaid expenses amounting to P306.983 million and P223.869 million for
CY 2023 and CY 2022, respectively, composed mainly of subscriptions of
various software licenses essential for the Fund’s day-to-day operation, prepaid
rent, insurance, fidelity bond and registration.

8. NON-CURRENT ASSETS HELD FOR SALE

This account consists of:

2023 2022
Balances at beginning of year 1,287,869,129 1,322,468,981
Additions 6,638,973,413 7,110,710,453
Disposal (5,613,123,608) (6,302,453,524)
Adjustments/Cancellations (890,124,712) (842,856,781)
Balances at end of year 1,423,594,222 1,287,869,129

For CY 2023, the P8.222 billion gains arising from the sale of assets held for
sale is presented as part of Gains (Note 22). On the other hand, the P4.059
million loss from sale is presented under Non-Cash Expenses-Losses (Note 27).

9. INVESTMENT PROPERTY
IP is composed of ROPA with Transfer Certificate of Title still for consolidation in
favor of the Fund as well as properties under the name of the Fund and other
land and land improvements being held for rental and capital appreciation.

The movements in real and other properties acquired are as follows:

As at December 31, 2023
Land and Land
Improvement Building Total
Cost
Balances at beginning of year 7,215,358,175 9,466,029,709 16,681,387,884
Additions 3,413,682,038 6,768,393,136 10,182,075,174
Reclassification to NCAHS (2,808,081,333) (4,066,889,774) (6,874,971,107)
Disposals/Adjustments 416,533,667 236,239,828 652,773,495
Balances at end of year 8,237,492,547 12,403,772,899 20,641,265,446
Accumulated depreciation
Balances at beginning of year 883,741 1,043,242,980 1,044,126,721
Additions 121,895 408,641,774 408,763,669
Disposals/Adjustments 0 (318,532,077) (318,532,077)
Balances at end of year 1,005,636 1,133,352,677 1,134,358,313

Allowance for impairment

Balances at beginning of year 64,358,677 307,486,284 371,844,961
Additions 10,107,839 102,540,808 112,648,647
Disposals/Adjustments (20,449,254) (169,707,303) (190,156,557)
Balances at end of year 54,017,262 240,319,789 294,337,051
Carrying amount, end of year 8,182,469,649 11,030,100,433 19,212,570,082

39
As at December 31, 2022

Land and Land

Improvements Building Total

Cost
Balance at beginning of year 8,196,498,208 9,877,137,234 18,073,635,442
Additions 2,250,686,595 3,551,148,957 5,801,835,552
Reclassification to NCAHS (3,192,049,357) (4,496,324,938) (7,688,374,295)
Disposals/Adjustments (39,777,271) 534,068,456 494,291,185
Balance at end of year 7,215,358,175 9,466,029,709 16,681,387,884

Accumulated depreciation
Balance at beginning of year 761,846 1,186,173,564 1,186,935,410
Additions 121,895 361,027,588 361,149,483
Disposals/Adjustments 0 (503,958,172) (503,958,172)
Balance at end of year 883,741 1,043,242,980 1,044,126,721

Allowance for impairment

Balance at beginning of year 88,881,397 379,303,520 468,184,917
Additions 11,531,670 122,146,867 133,678,537
Disposals/Adjustments (36,054,390) (193,964,103) (230,018,493)
Balance at end of year 64,358,677 307,486,284 371,844,961
Carrying amount, end of year 7,150,115,757 8,115,300,445 15,265,416,202

Fair value is based on valuation performed by in-house appraisers. The Fund

employed the following appraisal methods: (a) Market Data for the lot, and (b)
Cost Approach for the house component of the property. As a matter of policy,
ROPA is initially recognized at appraised value net of discount per APM and is
subject to re-appraisal at least once every two years until its eventual disposal.

Status of appraisal is shown below:

No. of Ac- Appraised

counts Book Value Value*
With valid appraisal 43,138 18,623,128,189 42,071,883,506
With lapsed appraisal 4,589 1,540,539,624 3,170,332,718
47,727 20,163,667,813 45,242,216,224
*Appraised value excludes applicable discount under APM.

For accounts with lapsed appraisal as at December 31, 2023, units concerned
are continuously exerting efforts to fully migrate the remaining ROPA accounts
to the ROPA System. Said system has been fully deployed in CY 2018 and is
an efficient tool in recording ROPA transactions specifically geared towards vol-
ume of portfolio, complexity of the transactions and reasons, revaluation and
computation of impairment and depreciation.

Included in the IP are the following properties held for rental by the Fund:

Manila Harbour

The properties being held for rental and capital appreciation are located at the
Manila Harbour Central Business District, Tondo, Manila. These consist of 18
lots with a total area of 17,293.26 square meters acquired in December 1996 for
a total price of P302.632 million in exchange for the matured Smokey Mountain

40
Project Participation Certificates as approved under Board Resolution No. 1234,
series of 1996. The price is inclusive of real property tax paid upon acquisition.

All the 18 lots on lease are as follows:

Block/Lot Area Rent per

Lessee No. Qty Contract Period (in Sq.M.) Sq.M.
SL Harbour Bulk Terminal Corp. B15, L1-7 7 Jan. 2022 - Jan. 2024 9,535.76 P316.05
Moreta Shipping Lines Inc. B18, L5-7 3 Mar. 2023 - Mar. 2025 2,125.48 336.00
Moreta Shipping Lines Inc. B21, L5-12 8 Jan. 2022 - Jan. 2024 5,632.02 316.05
18 17,293.26

Total rent/lease income on the properties for CY 2023 totaled P65.651 million,
while expenses incurred, including real property taxes and depreciation
expenses on the installed water distribution system, amounted to P6.408 million.

The estimated minimum future annual rentals of the Fund are as follows:

2023 2022
Within one year 66,452,338 65,650,524
More than one year but not more than five years 1,499,739 15,220,532
67,952,077 80,871,056

In 2023, the average appraisal value of the 18 lots is P1.581 billion as

determined by in-house appraiser and two external appraisers.

Fiesta World Mall - Building A

The Fiesta World Mall – Building A located in Barangay Marauoy, Lipa,

Batangas was acquired by the Fund through Deed of Dacion en Pago in 2018.
It consists of a two-story mall with a total lot area of approximately 6,408 square
meters. It has a book value of P151.268 million with an appraised value of
P379.871 million on land, building and machineries based on the Appraisal
Report dated May 11, 2023. The building is being leased and the Fund has
collected a total of P7.146 million as lease income in CY 2023.

Club Balai Isabel Condotel Units

The 11 Club Balai Isabel condotel units were transferred to the Fund by way of
Dacion in Payment Agreement in January 2016. These properties are located in
Club Balai Isabel Resort in Sta. Maria, Talisay, Batangas, with floor area ranging
from 33.10 to 68.32 square meters.

The consolidated book value of these units is P22.344 million which have a
market value of P64.618 million based on the Appraisal Report dated May 10,
2023. All units are being held for lease by Club Balai Isabel, Inc. (CBII) at
P10,000 per unit per month for a total monthly rental of P110,000. Total
rent/lease income generated from the properties in CY 2023 amounted to
P1.245 million.

41
10. PROPERTY AND EQUIPMENT

This account consists of the following:

As at December 31, 2023

Buildings
Land and Other Machinery and Construction Total
Land Improvements Structures Equipment in Progress
Cost
Balances at beginning of year 110,637,260 2,066,428 1,585,541,932 1,602,716,043 1,675,047 3,302,636,710
Additions 90,432 0 33,130,255 280,273,428 22,387,551 335,881,666
Disposals 0 0 (6,909,658) (38,160,352) 0 (45,070,010)
Reclassifications/Adjustments (273,082) 0 55,843,181 (128,523,488) 0 (72,953,389)
Balances at end of year 110,454,610 2,066,428 1,667,605,710 1,716,305,631 24,062,598 3,520,494,977
Accumulated Depreciation
Balances at beginning of year 0 1,294,021 1,073,067,049 1,072,621,542 0 2,146,982,612
Additions 0 155,884 58,231,893 139,472,387 0 197,860,164
Disposals 0 0 (5,698,356) (33,492,926) 0 (39,191,282)
Reclassifications/Adjustments 0 0 17,884,682 (78,876,779) 0 (60,992,097)
Balances at end of year 0 1,449,905 1,143,485,268 1,099,724,224 0 2,244,659,397
Accumulated Impairment
Balances at beginning of year 0 0 0 47,945 0 47,945
Impairment loss/(recovery) 0 0 217,360 1,103,788 0 1,321,148
Reclassifications/Adjustments 0 0 (148,884) (1,103,788) 0 (1,252,672)
Balances at end of year 0 0 68,476 47,945 0 116,421
Carrying Amount, end of year 110,454,610 616,523 524,051,966 616,533,462 24,062,598 1,275,719,159

As at December 31, 2 As at December 31, 2022

Land Buildings and Other Machinery and Construction

Land Improvements Structures Equipment in Progress Total
Cost
Balances at beginning of year 110,341,700 1,748,428 1,557,021,163 1,525,592,394 1,675,047 3,196,378,732
Additions 0 318,000 50,070,487 285,234,337 0 335,622,824
Disposals 0 0 (7,250,179) (119,337,595) 0 (126,587,774)
Reclassifications/Adjustments 295,560 0 (14,299,539) (88,773,093) 0 (102,777,072)
Balances at end of year 110,637,260 2,066,428 1,585,541,932 1,602,716,043 1,675,047 3,302,636,710
Accumulated Depreciation
Balances at beginning of year 0 1,150,055 1,025,110,975 1,037,862,495 0 2,064,123,525
Additions 0 143,966 54,478,228 134,096,370 0 188,718,564
Disposals 0 0 (6,522,154) (99,337,323) 0 (105,859,477)
Balances at end of year 0 1,294,021 1,073,067,049 1,072,621,542 0 2,146,982,612
Accumulated Impairment
Balances at beginning of year 0 0 0 0 0 0
Impairment loss/(recovery) 0 0 0 323,461 0 323,461
Reclassifications/Adjustments 0 0 0 (275,516) 0 (275,516)
Balances at end of year 0 0 0 47,945 0 47,945
Carrying Amount, end of year 110,637,260 772,407 512,474,883 530,046,556 1,675,047 1,155,606,153

Certain fully depreciated PE as of December 31, 2023 and 2022 are still being
used in operations with acquisition costs amounting to P1.498 billion and P1.402
billion, respectively.

Impairment loss on PE recognized in SCI amounted to P1.321 million and

P0.323 million for CY 2023 and CY 2022, respectively (Note 27).

42
11. RIGHT-OF-USE ASSETS

Right-of-Use Assets (ROU) refers to the cost of right to use the underlying asset
held under a lease contract.

This account consists of the following:

2023 2022

Cost:
Balance at beginning of year 2,946,649,056 2,735,073,438
Additions 453,882,634 612,270,829
Derecognition (525,158,260) (351,260,998)
Adjustments (2,744,372) (49,434,213)
Balance at end of year 2,872,629,058 2,946,649,056

Accumulated Depreciation
Balance at beginning of year 1,366,087,138 1,033,963,960
Additions 693,385,380 681,063,212
Derecognition (523,327,507) (265,538,340)
Adjustments (3,411,237) (83,401,694)
Balance at end of year 1,532,733,774 1,366,087,138
Carrying Amount, end of year 1,339,895,284 1,580,561,918

12. INTANGIBLE ASSETS

Intangibles include various software licenses used in the day-to-day operations

of the Fund. Changes in the costs of intangible assets are as follows:

2023 2022
Cost
Balance, January 1 175,281,772 227,333,812
Addition 0 5,118,975
Derecognition/Adjustments 0 (57,171,015)
Balance, December 31 175,281,772 175,281,772

Accumulated Amortization
Balance, January 1 90,252,544 110,608,290
Amortization 28,605,894 30,867,285
Derecognition/Adjustments 750,153 (51,223,031)
Balance, December 31 119,608,591 90,252,544
Carrying Amount, December 31 55,673,181 85,029,228

43
13. OTHER NON-CURRENT ASSETS

This classification comprises the following:

2023 2022
Deposits 256,805,427 249,894,712
Other assets 37,074,968 51,163,664
293,880,395 301,058,376

Deposits consist mainly of rental and other guaranty payments amounting to

P203.987 million, as well as the payment of proportionate share of the Fund in
the retrofitting of Atrium Makati Condominium Building amounting to P44.819
million.

Other assets include the unexpended portion amounting to P16.622 million as at

December 31, 2023, on the 50 per cent share of the Fund on motor vehicles
purchased through the HDMF Car Plan.

14. FINANCIAL LIABILITIES

This account consists of the following:

2023 2022

Current
AP Members Pag-IBIG I 48,653,589,106 42,557,319,251
Modified Pag-IBIG II 37,051,331,936 17,891,105,741
Insurance/Reinsurance premium payable 5,841,723,269 5,337,019,595
AP STL Borrowers 4,126,543,727 4,478,288,476
Due to officers and employees 4,970,486 7,058,092
Other accounts payable 5,734,273,862 4,160,399,510
101,412,432,386 74,431,190,665

Non-Current
Modified Pag-IBIG II 102,996,124,917 81,107,610,586
204,408,557,303 155,538,801,251

AP Members Pag-IBIG I represents TAV which have reached their maturity at

SFP date but have not been withdrawn, as well as those that will mature in the
succeeding year.

Modified Pag-IBIG II

In compliance with PFRS 9, it was assessed that MP2 portfolio qualifies as a

financial liability rather than an equity because of its withdrawability feature.
During the Board Audit Committee meeting held on February 9, 2022,
Management presented the accounting treatment of MP2 and informed the body
that it will comply with the standard and effect the reclassification effective
December 31, 2021.

44
 Current portion of MP2 portfolio is AP-MP2 which includes the matured and
maturing TAV in the amount of P32.371 billion and financial liabilities on
Investment Contracts of P4.680 billion computed based on the average of last
three years’ pre-termination availment rate multiplied by 200 per cent.

Included in the MP2 portfolio is the Investment Contract Benefit Payable

amounting to P8.047 billion and P5.437 billion for CY 2023 and CY 2022,
respectively.

Insurance/Reinsurance Premium Payable represents insurance premiums for

HL initially deducted from HL proceeds and subsequently collected as part of the
monthly amortizations representing insurance premium prepayments for
remittance to the insurance provider.

AP STL Borrowers are amounts payable to borrowers arising from overpayment

of STL.

Other accounts payable includes payable to various suppliers and accrual of

expenses already incurred at year-end but have not yet been paid.

15. LEASE PAYABLE

This account pertains to the present value of the lease payments payable over
the lease term discounted using the interest rate implicit in the lease or the
prevailing borrowing rate. Set out below, are the carrying amounts of this
account and the movements during the period:

2023 2022
Balance at beginning of year 1,602,375,058 1,739,915,877
Additions 452,909,556 650,024,211
Interest 62,397,403 65,627,027
Lease payments (744,086,656) (853,192,057)
Adjustments 11,132,723 0
1,384,728,084 1,602,375,058
Less current portion 629,371,417 580,625,882
755,356,667 1,021,749,176

The interest expense relative to the lease payable for CY 2023 is presented in
Note 26 - Financial Expenses.

The undiscounted maturity analysis of lease payables as at December 31, 2023

is as follows:

More than 1 year More than 3

Within 1 year to 3 years years Total
Lease payments
676,248,894 739,623,023 44,049,295 1,459,921,212

Less: Interest expense 46,877,477 27,751,747 563,904 75,193,128

Lease payable 629,371,417 711,871,276 43,485,391 1,384,728,084

45
16. INTER-AGENCY PAYABLES

This account consists of the following:

2023 2022
Due to BIR 145,205,161 115,036,029
Due to GSIS 71,000,922 28,497,070
Due to Other Government Corporations 36,392,674 36,098,448
Due to PhilHealth 6,081,103 1,141,780
Due to Local Government Units (LGUs) 2,079,629 2,079,629
Due to Pag-IBIG 1,920,178 44,818
Due to National Government Agencies (NGAs) 1,470,130 1,450,130
Due to SSS 412,885 0
264,562,682 184,347,904

Due to BIR consists of liability for income taxes withheld from employees’
compensation and for taxes withheld from payment to suppliers for the account
of the BIR for the month of December 2023 to be remitted in January 2024.

Due to Other Government Corporations includes payable to NHMFC amounting

to P35.311 million as at December 31, 2023.

Due to GSIS, Due to Pag-IBIG and Due to PhilHealth comprise of amortization

of loan availments, life and retirement insurance premiums payable to GSIS,
contributions and amortization of loan availments payable to Pag-IBIG Fund,
and medical insurance premiums payable to PhilHealth deducted from the
salary of the Fund’s regular employees and the employer’s counterpart for the
month of December 2023 to be remitted in January 2024.

17. TRUST LIABILITIES

The account consists of the following:

2023 2022
Customers’ deposits payable 2,132,684,616 1,884,955,757
Guaranty/security deposits payable 233,419,307 221,702,295
Other trust liabilities 266,847,768 266,888,320
2,632,951,691 2,373,546,372

Customers’ deposits payable represents down payment and equity from the
housing loan borrowers who will avail of the housing loan restructuring program.

Guaranty/security deposits payable pertains to suppliers’ deposits on bids and

performance guarantee deposits.

Other trust liabilities account is composed mainly of dormant balances left by the
defunct Billing and Ledgering Department (BLD) - MCR in the books of the CHQ
after the decentralization of accounts in CY 1992, and unidentifiable collections
of closed banks. The balances are initially classified under UC account but were

46
 reclassified to Trust Liabilities account on December 29, 2016, after
reconciliation activities proved to be futile due to the absence of supporting
documents. These shall be gradually reduced upon request by operating units
for transfer of payment records, triggered by the borrowers’ presentation of Pag-
IBIG Fund Receipts (PFRs) covering previous payments. Also, included in this
account are long outstanding membership contributions of Pag-IBIG Overseas
Program (POP) members that remain unposted for the following reasons: a)
invalid payor’s ID and different membership type; b) no available records with
Pag-IBIG International Operations Group (PIOG); c) discrepancy in the payor’s
name; and d) lack of Over-the-Counter (OTC) daily collection report.

18. PROVISIONS

This consists of the following:

2023 2022
Current:
Personnel Services
Salaries and Wages 18,613,367 20,602,667
Leave and medical benefits 895,579,834 805,060,054
Other Compensation and Personnel Benefits 411,381,496 396,907,003

Maintenance and Other Operating Expenses

Professional Services 840,662,466 800,279,982
General Services 228,752,967 218,407,482
Communication Expenses 61,299,750 44,954,522
Utility Expenses 30,097,546 32,622,302
Repairs and Maintenance 24,416,845 27,447,574
Traveling Expenses 23,098,021 29,786,336
Other Maintenance and Operating Expenses 269,969,516 370,101,795
2,803,871,808 2,746,169,717
Non-current:
Leave benefits 532,199,768 544,115,653
3,336,071,576 3,290,285,370

19. OTHER PAYABLES

The details of this classification are as follows:

2023 2022
Conversion cost 17,399,761,423 16,091,998,312
Developers’ undertaking 3,385,933,973 3,370,465,660
Undistributed collections 346,267,262 285,006,912
HL under Remediation 286,538,064 233,223,001
Borrowers’ undertaking 79,072,424 79,487,241
21,497,573,146 20,060,181,126

47
 Conversion cost pertains to amount withheld from the take-out proceeds of the
developer to defray cost to be incurred in the conversion of CTS to REM.
Developer submits to the Fund the required documents such as TCT/Original
Certificate of Title (with mortgage duly annotated thereon) and Tax Declaration
both already under the name of the borrower, updated Real Estate Tax Receipt,
Loan and Mortgage Agreement (duly stamped by the Register of Deeds) and
Special Power of Attorney, if any. Upon submission of these documents, a
refund of withheld conversion cost to the developer can be made.

Developers undertaking includes amount deducted from take-out proceeds of

developer-assisted HL accounts representing cash retention for allowable
undertakings of developer.

Undistributed collections include collections of members’ contributions, STL and

HL repayments which have not been allocated to the specific
members’/borrowers’ accounts and collections under PFMS and STLMS due to
absence of Membership Identification (MID) Number and STL Application
Number. These also include collections which at month-end are still in transit for
transfer to the branches carrying the account/s, thus, remain floating in the Due
to/from regional/branch accounts. The Posting Clearing Account (PCA) which
falls under UC covers daily collections and checks subject to one day clearing
period prior to allocation and posting to the members’/borrowers’ subsidiary
ledger within five days from receipt of the journal ticket by the operating unit
concerned.

HL under Remediation is used to record partial payments received from HL

borrowers whose accounts were already in default and subsequently reclassified
to SCR Under Remediation, MCR-Referred to Foreclosure and MCR with Filed
Petition for Extra-Judicial Foreclosure.

Borrowers undertaking pertains to deductions from take-out proceeds of retail

HL accounts representing cash retention for allowable undertakings of borrower.

20. DEFERRED CREDITS/UNEARNED INCOME

This account is composed of:

2023 2022
Deferred credits 13,426,514,018 14,619,516,002
Unearned revenue/income 887,110,439 808,414,048
14,313,624,457 15,427,930,050

Deferred credits account represents the capitalized interest income on

restructured HL which are credited to interest income and penalties upon
amortization every month-end, and rental payments on foreclosed properties
under the redemption period or rent-to-own arrangement.

Deferred Credits for the interest-bearing portion of the restructured amount is

amortized based on the principal payments over the corresponding outstanding
balance portion, while the Deferred Credits for the non-interest bearing portion

48
 of the restructured amount is credited to Interest Income in proportion to the
received payment.

In 2023, deferred interest income amounting to P6.858 billion was recognized

from STI, IL, HL and STL accounts that fall due within the period covered by the
grant of mandatory grace period under Bayanihan I and Bayanihan II.

Unearned revenue/income includes capitalized origination fees on loans

processed prior to May 30, 2001, which is being amortized and credited as
income over the term of the loan. It also includes interest portion of advance
amortization on HL posted to the borrowers’ ledger.

21. SERVICE AND BUSINESS INCOME

The account consists of the following:

2023 2022

Service income
Fees and commissions income 392,903,170 339,713,877
Processing fees 292,802,061 316,599,866
Other service income 81,989,546 93,620,472
767,694,777 749,934,215

Business Income
Interest income 57,602,748,362 50,583,255,831
Income from acquired/foreclosed assets 4,125,656,564 2,115,246,100
Fines and penalties 1,530,252,502 1,846,555,584
Rent/lease income 83,295,112 83,244,283
Dividend income 82,974 40,202
Other business income 634,042 1,135,533
63,342,669,556 54,629,477,533
64,110,364,333 55,379,411,748

Service income

Fees and commissions income include insurance service fees that are adminis-
trative fees collected from the insurance provider equivalent to 0.02 per cent of
the total amount insured, deducted from the remittances of premiums to the bro-
ker. It also includes sales administration fee and mortgage origination fee that
are collected as part of the monthly amortization of HL borrowers who availed of
loans under HDMF Circular Nos. 147 and 148, respectively, fees for appraisal
services on properties offered as collateral for loan with the Fund, forfeited com-
mitment fee from developers, handling fee, pre-termination fee and Housing
Contributory Fund.

Processing fees of P3,000 are collected from borrowers availing of loans under
HDMF Circular Nos. 312, 385, and 396 and conversion to Full Risk-Based Pric-
ing Model under HDMF Circular No. 317.

49
 Other service income is a miscellaneous income account used to recognize fee
for the servicing and administration of the subject HL accounts and fees col-
lected for the services by the Fund in conversion of the CTS to REM or in trans-
fer of title in the name of the borrower and registration of mortgage.

Business income

Interest income includes interests earned from HL, STL and investments.

Income from acquired/foreclosed assets includes income from acquired/ fore-

closed property and income from repurchase of dacioned assets which are re-
deemed by the owners within the redemption period.

Fines and penalties are fees imposed on late remittances of HDMF contribu-
tions, amortizations of STL and MCR, and other housing related loans.

22. GAINS

This consists of the following:

2023 2022
Gain on sale of NCAHS 8,222,083,882 9,261,132,663
Gain from changes in fair value of financial
instruments 860,626,964 1,208,622,809
Gain on foreign exchange 463,228,151 772,145,414
Gain on sale of IP 58,025,437 273,663,802
Gain on sale/redemption/transfer of investments 44,319,422 3,452,262
Gain on sale of PE 429,615 4,854,009
Other gains
Gain from redemption of auctioned properties 0 55,568,639
Gain on revalued MCR 0 26,689,591
Gain on revalued SCR 0 2,033,758
Others 53,269,195 446,066
9,701,982,666 11,608,609,013

23. OTHER NON-OPERATING INCOME

This consists of the following:

2023 2022
Reversal of impairment loss 2,726,269,310 1,703,257,277
Miscellaneous income 671,566,564 426,246,009
3,397,835,874 2,129,503,286

Reversal of impairment loss pertains to recovery from provision of impairment

losses due to improvement in the quality of the loan portfolio and other housing-
related assets of the Fund.

50
 Miscellaneous income includes proceeds from insurance/indemnities, income
from foreclosure recovery, miscellaneous fines and penalties, and other rev-
enues, income, receipts, or adjustments not elsewhere classified under any spe-
cific account.

24. PERSONNEL SERVICES

This consists of the following:

2023 2022
Salaries and wages
Salaries and wages-regular 2,776,019,352 2,723,214,977
Other compensation
Bonuses and incentives 1,632,671,967 2,073,598,651
Overtime and night pay 122,370,103 52,270,139
Personnel economic relief allowance 86,515,943 88,566,148
Health maintenance insurance 58,779,827 94,089,810
Representation allowance 42,426,139 43,841,249
Transportation allowance 35,078,987 38,609,372
Clothing/uniform allowance 22,548,122 22,396,188
Cash gift 18,034,250 18,588,500
Quarters allowance 0 9,652,201
Longevity pay 0 6,098,183
Other compensation 15,134,569 76,166,893
2,033,559,907 2,523,877,334
Personnel benefit contributions
Retirement and life insurance premiums 333,383,519 326,886,889
Provident/welfare fund contributions 269,292,016 436,211,839
PhilHealth contributions 50,495,241 48,385,447
Pag-IBIG contributions 4,334,186 4,439,837
Employees compensation insurance premiums 4,333,771 4,439,215
661,838,733 820,363,227
Other personnel benefits
Terminal leave benefits 301,717,024 588,687,778
Other personnel benefits 48,017,546 59,946,255
349,734,570 648,634,033
5,821,152,562 6,716,089,571

Other compensation includes director and committee members’ fee, rice and
meal subsidies, special counsel allowance, medical, ophthalmological and
dental incentives and other allowances.

Other personnel benefits, on the other hand, consist of expenses incurred for
Programs on Awards and Incentives for Service Excellence (PRAISE), car plan
benefits, loyalty cash award and other benefits.

51
25. MAINTENANCE AND OTHER OPERATING EXPENSES

This expense classification consists of:

2023 2022
Professional services 3,843,092,195 4,043,006,736
Litigation/acquired assets expenses 863,149,506 639,998,663
General services 821,465,497 844,818,047
Subscription expenses 520,259,303 365,835,933
Supplies and materials expenses 410,691,450 467,277,670
Advertising, promotional and marketing
expenses 298,151,424 59,487,834
Utility expenses 256,502,409 266,175,487
Transportation and delivery expenses 246,006,553 450,291,726
Communication expenses 244,847,863 263,361,745
Members' benefits 235,366,967 265,561,916
Repairs and maintenance 126,794,361 133,284,529
Traveling expenses 105,400,389 54,036,868
Rent/lease expenses 65,351,783 26,595,219
Major events and conventions expenses 61,648,542 54,844,878
Representation expenses 59,010,222 48,816,863
Survey, research, and development
expenses 42,698,670 13,001,582
Training and scholarship expenses 42,219,113 11,334,793
Printing and publication expenses 35,359,559 31,392,379
Taxes, insurance premiums and other fees 30,077,699 45,055,484
Awards/rewards, prizes and indemnities 13,847,973 192,727
Fees and commission expenses 3,424,851 548,288
Others 461,815,847 173,582,770
8,787,182,176 8,258,502,137

Professional services include costs incurred for legal, auditing, consultancy, and
other professional services.
General services consist of expenses incurred for janitorial services, security
services and other general services contracted by the Fund not otherwise
classified under any of the specific general services accounts.

Litigation/acquired assets expenses account pertains to expenses incurred for

litigation proceedings and registration/consolidation of ownership of acquired
assets, as well as those incurred in their preservation/maintenance and
expenses related to disposal of acquired assets.

Other MOOE includes IP-ROPA-related expenses amounting to P213.565

million for CY 2023.

52
26. FINANCIAL EXPENSES

This account consists of:

2023 2022
Interest expense - lease 62,397,403 65,627,027
Management supervision/trusteeship fees 13,420,308 13,767,183
Bank charges 1,111,438 1,006,081
76,929,149 80,400,291

27. NON-CASH EXPENSES

This account consists of:

2023 2022
Impairment loss 9,835,706,844 6,248,112,325
Losses 1,556,131,023 2,047,780,699
Depreciation 1,300,009,213 1,230,931,259
Amortization 28,605,894 30,867,285
Others 14,848,632 1,170,850
12,735,301,606 9,558,862,418

The provision for impairment is intended to absorb the potential future losses on
the Fund’s receivables, IP and PE.

Details of impairment loss are as follows:

2023 2022
Receivables 9,721,737,049 6,114,110,327
Investment property 112,648,647 133,678,537
Property and equipment 1,321,148 323,461
9,835,706,844 6,248,112,325

Breakdown of losses for the periods ended December 31, 2023, and 2022 are
as follows:

2023 2022
Loss from changes in fair value of
financial instruments 747,707,655 1,511,798,467
Loss on foreign exchange 500,591,141 286,843,810
Loss on sale/redemption/transfer of
investments 68,754,413 0
Loss on sale of PE 6,844,623 5,876,536
Loss on sale of NCAHS 4,058,716 33,339,768
Loss on sale of IP 1,514,039 3,955,962
Other losses 226,660,436 205,966,156
1,556,131,023 2,047,780,699

53
 Other losses pertain to losses on foreclosure, dacion en pago, redemption of
auctioned properties and reclassification to IP-ROPA or NCAHS.

Depreciation expenses for the periods ended December 31, 2023, and 2022 are
as follows:

2023 2022
ROU assets 693,385,380 681,063,212
Depreciation on IP 408,763,669 361,149,483
Depreciation on PE 197,860,164 188,718,564
1,300,009,213 1,230,931,259

28. INVESTMENT CONTRACT BENEFIT EXPENSE

The Fund provides returns to MP2 accounts. It is equivalent to flexible return

rates higher than that of Pag-IBIG I accounts.

Commencing CY 2021, MP2 is classified as a financial liability (Note 14).

Consequently, the Fund recognized Investment Contract Benefit Expense
amounting to P8.047 billion and P5.437 billion in the SCI for CYs 2023 and
2022, respectively, as returns to member-savers.

29. MEMBERS’ EQUITY

This account reflects the equity of the members as owners of Pag-IBIG Fund
amounting to P574.954 billion in CY 2023 and P531.625 billion in CY 2022,
corresponding to members’ contributions, employers’ counterpart for employed
members and the accumulated dividends. The account is reduced by the
provident claims of members and offsetting of loans against the TAVs.

30. CUMULATIVE CHANGES IN FAIR VALUE

Cumulative changes in fair value comprise of net unrealized gains (losses) from
marking to market of financial assets at FVOCI. The net changes for each year
are as follows:

2023 2022
Bonds and other debt instruments - MSRF (1,372,417,475) (2,090,794,845)
Trustees and Officers Liability (2,009,263) (6,654,478)
Stocks/equity securities (388,040) (372,802)
Bonds and other debt instruments 0 (235,521,798)
(1,374,814,778) (2,333,343,923)

The decrease in net unrealized losses in CY 2023 is caused by the increase in

the mark-to-market revaluation of Investments at FVOCI.

54
 The net unrealized gains (losses) on financial assets are broken down as
follows:

2023 2022
Net unrealized gains losses,
January 1 (2,333,343,923) (114,908,136)
Unrealized gains:
Recognized during the year 3,451,722,135 1,110,388,610
Realized during the year (44,319,422) (3,452,262)
3,407,402,713 1,106,936,348
Unrealized loss:
Recognized during the year (2,517,627,981) (3,325,372,135)
Realized during the year 68,754,413 0
(2,448,873,568) (3,325,372,135)
Net unrealized gains (losses) during the year 958,529,145 (2,218,435,787)
Net unrealized losses, December 31 (1,374,814,778) (2,333,343,923)

31. RETAINED EARNINGS

RE consists of accumulated earnings of the Fund not paid out as dividends. RE

amounting to P104.193 billion as at December 31, 2023, includes
appropriations, and net income for CY 2023 pending dividend declaration,
detailed as follows:

2023 2022
Unappropriated 103,733,913,845 99,255,796,415
Appropriated 262,025,660 264,948,885
Unclaimed Balance 110,938,785 94,677,468
Reserve for Future Claims 86,359,476 15,712,547
104,193,237,766 99,631,135,315

Unappropriated

As at December 31, 2023 and 2022, the balance of RE-Unappropriated is at

P103.734 billion and P99.256 billion, respectively.

Dividends

For CY 2023, dividends declared for Pag-IBIG I and other programs is at

P40.713 billion.

For years 2022 and 2021, dividends are at P37.261 billion and P28.975 billion,
respectively.

Appropriated and Unclaimed Balance

Pursuant to AMO No. 2018-013 issued last August 28, 2018, the long
outstanding accounts payables aged two years but not more than ten years are
reclassified to RE-Appropriated, while payables aged more than ten years are
reclassified to RE-Unclaimed Balances accounts.

55
 As at December 31, 2023, approved reclassification to RE-Appropriated and
RE-Unclaimed Balances amounted to P262.026 million and P110.939 million,
respectively.

Reserve for Future Claims

The BOT approved, through Resolution No. 2998 dated January 31, 2013, the
disposition of general and subsidiary ledger discrepancies of Members’
Contributions, Multi-Purpose Loans Receivables and Mortgage/Sales Contract
Receivables. The adjustments of long outstanding float items due to the
conclusion of the reconciliation and records cleanup activities amounting to
P1.826 billion were lodged to this account, which is intended for the settlement
of valid future claims, subject to pertinent provisions of Rule XI, Section 1,
Unclaimed Savings/Dividends of the IRR of RA No. 9679. As at December 31,
2023, the account has an outstanding balance of P86.359 million.

32. LEASES

The Fund as a lessee

In CY 2023, the Fund recognized lease commitments reflected as ROU assets

under Note 11 and Lease Payable under Note 15. The lease term ranges from
two to five years.

Other lease commitments entered into by the Fund which were expensed as in-
curred are as follows:

 Short-term leases with lease term of 12 months or less at the commence-

ment date and do not contain a purchase option
 Low-value leases
 Variable lease payments not included in the measurement of lease liabilities
The amounts recognized in the SCI (Notes 25 and 26) are as follows:

2023 2022
Expense relating to short-term leases 53,672,468 21,471,365
Expense relating to variable lease payments
not included in the measurement of lease
liabilities 11,679,315 5,123,854
Interest expense - lease 62,397,403 65,627,027
127,749,186 92,222,246

The Fund as a lessor

Rent/lease income pertains to the income earned from lessees of the Fund’s
properties at Manila Harbour Centre, Fiesta World Mall, and Club Balai Isabel
Resort.

56
33. COMPLIANCE WITH TAX LAWS

Supplementary Information Required by the BIR Under Revenue Regulations

(RR) No. 15-2010

In compliance with the requirements set forth in RR No. 15-2010, hereunder, are
the information on taxes, duties and licenses paid or accrued during the taxable
year.

The components of taxes, duties and license fees paid and accrued during the
year are as follows:

2023 2022

Taxes, duties, and fees

Taxes and licenses - ROPA 258,597,757 230,749,697
Real estate taxes - ROPA 77,629,005 80,105,839
Real estate taxes - Properties 2,800,949 2,778,009
Others 722,353 695,850
339,750,064 314,329,395
Withholding taxes
Tax on compensation 640,787,557 836,480,590
Government Value-Added Tax (GVAT) 320,084,868 302,272,439
Creditable income taxes withheld
(Expanded) 151,808,289 148,542,420
Other percentage taxes 8,693,646 10,699,088
Final withholding taxes 3,346,956 325,876
1,124,721,316 1,298,320,413
1,464,471,380 1,612,649,808

On September 28, 2011, BIR Revenue Memorandum Circular No. 43-2011

circularizing Section 19 of RA No. 9679 was issued highlighting the Fund’s
exemption from tax payments relative to the said law. It also states the Fund’s
exemption from the documentary stamp tax (DST) imposed under Title VII of the
National Internal Revenue Code of 1997.

The President of the Philippines signed into law the Package 1 of the Tax
Reform Acceleration and Inclusion Law on December 19, 2017, otherwise
known as the “TRAIN Law” under RA No. 10963. One of the salient features of
the Train Law is the increase of the non-taxable personal income to P250,000
per year for compensation income earners and self-employed and/or
professional. The result of which is the decrease in monthly withholding tax for
employees’ compensation. This Act took effect starting January 2018.

The taxes paid for ROPA, which cover tax assessment not paid by the
borrowers prior to foreclosure of their properties, were assumed by the Fund to
facilitate consolidation of title.

The Fund has no deficiency assessments and tax cases under preliminary
investigation, litigation and/or prosecution in courts or bodies outside the BIR.

57
BIR Tax Assessment

For CY 2018

On December 13, 2019, the Fund received a Letter of Authority (LOA) from the
BIR for the examination of books of accounts and other accounting records for
all internal revenue taxes including DST, other taxes (Miscellaneous Tax) (OTH)
pursuant to Sections 6 (A) and 10 (C) of the National Internal Revenue Code of
1997, as Amended, covering the period January 1, 2018 to December 31, 2018.

The latter issued the Notice of Discrepancy on July 1, 2021. Consequently, the
Fund sent the BIR a letter response on the Notice of Discrepancy and a letter of
Protest against their Preliminary Assessment Notice (PAN) to refute the
discrepancies by presenting legal basis dated August 2, 2021 and November
24, 2021, respectively.

The BIR then issued its Final Letter of Demand (FLD) on April 12, 2022,
requiring the Fund to present more evidence and documents that will sufficiently
support the latter’s protest letter against the FLD. The Fund was given 30 days
within which to refute the FLD and another 60 days to submit the supporting
documents. Otherwise, the Fund will be obliged to pay the tax deficiencies
based on the said assessment.

In response to FLD, the Fund sent its Administrative Protest Against the FLD
stating that the assessment is erroneous and bereft of basis and submitted
relevant supporting documents and evidence in support on the Fund’s request
for reconsideration and reinvestigation on May 12, 2022 and July 11, 2022,
respectively.

On September 1, 2022, the BIR granted the Fund’s request for reinvestigation
and was endorsed to Revenue District Office (RDO) 126 - Regular Large
Taxpayers Audit Division III.

To date, the Fund has not received any communications from the BIR relative to
the said reinvestigation.

For CY 2015

On August 31, 2023, the BIR served the Final Decision on Disputed
Assessment on the deficiencies for Expanded Withholding Tax, Final
Withholding Value Added Tax and Documentary Stamp Tax for the taxable year
ending December 31, 2015. The Fund, on September 29, 2023, filed a petition
for the adjudication to the Department of Justice to reverse the said final
decision.

Computerized Accounting System (CAS)

Being classified as a large taxpayer, the Fund is required to submit CAS

application, together with the documentary and system requirements pursuant to
BIR Revenue Memorandum Order (RMO) No. 9-2021 which mandates the
maintenance and use of CAS and/or components thereof and RR No. 9-2009
which imposes the maintenance, retention and submission of electronic records.

58
 Upon evaluation, BIR favorably granted approval of the Fund’s application
through issuance of permit/acknowledgement certificate last November 22,
2023, with effectivity date commencing on January 01, 2024.

34. RELATED PARTY DISCLOSURES

As at December 31, 2023, the composition of the BOT of the Fund is as follows:

Name Board and Position Position from Other Agencies

Hon. Jose Rizalino L. Acuzar Department of Human Settlements and
Chairman Urban Development
Sec. Benjamin E. Diokno Department of Finance
Vice Chairman, Ex-Officio
Ms. Marilene C. Acosta –
Chief Executive Officer
Sec. Bienvenido E. Laguesma Department of Labor and Employment
Ex-Officio Member
Sec. Amenah F. Pangandaman Department of Budget and Management
Ex-Officio Member
Sec. Alfredo E. Pascual Department of Trade and Industry
Ex-Officio Member
Mr. Gregorio A. Montenegro Private Employees’ Representative
Member
Ms. Ma. Lorelei C. Fajardo Government Employees’ Representative
Member
Ms. Mylah R. Roque Private Employers’ Representative
Member
Atty. Comelio P. Aldon Private Employers’ Representative
Member
Mr. Anthony Cesar P. Arellano Private Employees’ Representative
Member

Key management compensation

The compensation of key management personnel consists of short-term benefits

amounting to P87.353 million and P89.364 million for the years ended
December 31, 2023, and 2022, respectively. Key management compensation
forms part of the accounts under the Personnel Services and Maintenance and
Other Operating Expenses (Notes 24 and 25).

59
 Salaries and allowances received, and expenses incurred by the key officers in
the conduct of their official functions are as follows:

2023 2022
Personnel services
Salaries and wages 54,696,043 49,132,831
Other compensations 24,908,571 26,192,353
Personnel benefits contributions 5,180,002 6,607,320
Other personnel benefits 1,988,637 2,078,228
86,773,253 84,010,732
Maintenance and other operating expenses
Supplies and materials expenses 579,725 355,640
Other maintenance and operating expenses 0 4,997,916
579,725 5,353,556
87,352,978 89,364,288

Co-ownership of Atrium of Makati Condominium Building

The Fund owns 84 units of the 177 total condominium units and 83 slots of the
204 total parking slots of the Atrium of Makati Condominium Building, equivalent
to 14,865.80 square meters or 52.73 per cent ownership of the 28,193.48
square meters total floor area. The property is located along Makati Avenue,
Urdaneta Village, Makati City (Note 13).

35. RISK MANAGEMENT

Pending the creation of a formal risk management structure and approval by the
GCG, a Risk Management Task Force (RMTF) was created. On December 29,
2015, a Special Order (SO) reassigning the Investment Risk Management
Division (IRMD) staff, complemented by a staff from the Legal and General
Counsel Group, to the RMTF was issued.

Per SO, the RMTF shall handle priority activities for the following functions:

- Design and deployment of the overall risk management framework to ensure

that the Fund’s exposures to its various risk-taking activities are
appropriately identified, measured, monitored, reported, and managed
across the organization covering credit risk, liquidity risk, market risk and
operational risk
- Monitoring of business unit’s adherence to framework and strategy
- Compilation of data on risk across operating units and escalation of risk and
control issues to ManCom/Board Risk and Capital Committee (BRCC)
- Aggregated risk reporting
- Recommendation on risk management decisions/mitigating activities to the
business units, ManCom, BRCC and BOT

The Enterprise Risk Management Policy (ERMP) was approved by the BOT on
July 6, 2017. The ERMP is the overarching framework for the overall direction
and strategies of the Fund on enterprise risk management. It shall serve as a

60
guide for systems and procedures for risk assessment, monitoring, and
communication and shall define the context for risk management activities.

In CY 2019, the RMTF started updating the ManCom, BRCC and the full Board
on the financial risks (credit, market, and liquidity) associated with the Fund’s
operations by reporting to them monthly the Financial Risk Highlights (FRH).

The FRH includes all the risk measurement tools/models/templates adopted by

the Fund to calculate/compute market, credit, and liquidity risks.

Credit risk

Credit risk is the risk of loss arising from the borrowers’ failure to fulfill their
contractual obligations. To mitigate this risk, the Fund has adopted the following
initiatives:

a. Implementation of the Borrower Evaluation System (BES)

The Fund has formulated the BES, a credit quality assessment process for
the determination of the creditworthiness of HL borrowers which also factors
in borrowers’ equity adjustments.

The assessment of the credit quality of housing portfolio taken out prior to
July 2012 is based on the flow rate or payment behavior of the borrowers.

b. Adoption of the Single Borrower’s Limit (SBL) for WL (HDMF Circular No.
306 dated April 10, 2012)

This aims to mitigate risks and limit the losses in the event of default by the
borrower/s and avoid a situation where a single loss will adversely affect the
profitability/financial condition of the Fund.

The total amount of loans, credit accommodations and guarantees that may
be extended to any person, partnership, association, corporation, or other
entity shall, at any point in time, not exceed 25 per cent of the Free RE of
the Fund. Free RE refers to the RE after declaration of dividends for the
preceding year and net of the total capital valuation accounts.

c. Conversion to Full Risk Based Pricing Model (HDMF Circular No. 317,
dated August 8, 2012)

A pricing framework was adopted where a market based and full risk-based
pricing of HL shall cover the Fund’s costs, its risks in terms of expected loss
on defaults and reasonable spread.

In support to the pricing framework, the Fund formulated models for the
PoD and LGD, which are components of the ELR. ELR is defined as the
product of PoD and LGD. These models will be applied to various loan
programs and subjected to periodic review for the required modifications to
firm-up the models.

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d. Credit Risk Management Policy

The Board approved the Credit Risk Management Policy on July 6, 2017. It
was patterned from pertinent provisions of BSP Circular No. 855, series of
2014, Guidelines on Sound Credit Risk Management Practices.

e. Prepayment Rate Model (PRM) for End-User

This was presented to and approved by the ManCom and BRCC last July
29, 2019, and August 30, 2019, respectively. The Model aims to determine
and monitor the Prepayment Rate of the EUF Portfolio.

f. Model Risk Management Policy

The ManCom and BRCC approved the Model Risk Management Policy
(MRMP) on December 9, 2019, and December 17, 2019, respectively. The
MRMP shall enable proactive assessment, prioritization, and management
of Model Risks to support the Fund’s vision, mission, and objectives. It is
patterned from different guidelines from European and US banks. This shall
be implemented by phase and will form part of the Risk Management
Manual. The Model Risk Management Procedure and Forms were
approved on July 23, 2021.

g. Roll rate

The ManCom approved the Roll Rate Report on July 13, 2020.

The roll rate is the percentage of HL accounts that roll or move from one
category of delinquency to the next. It monitors, for a given month, how
many HL accounts remained “current”, rolled, or moved to “1-month in
arrears” up to “12-months in arrears”, or fully paid.

h. Concentration risk

This is a risk report approved by ManCom on November 3, 2020.

Concentration risk measures the level of risk in the loan’s portfolio that
arises from uneven distribution of counterparties in credit or a concentration
in business sector, industry/economic, region, and other variables or
attributes. It arises in many contexts, such as market risk, liquidity risk, and
operational risk within a financial institution.

Concentration risk provides information if a common characteristic or

common sensitivity of individual transactions in the same group makes them
behave similarly, causing credit-related distress. The common characteristic
may become common weaknesses, or the concentration of credit may
perform like a single large exposure, thus it has the potential to pose risk to
earnings and capital.

Section 1 of BSP Circular No. 212, Series of 1999, states that, concentration
of credit as to industry or economic sector exists when total loan exposures
exceed 30 per cent of the total loan portfolio.

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Liquidity risk

Liquidity risk is defined as the risk that the Fund will encounter difficulty in
meeting obligations associated with financial liabilities. It may arise because of
the possibility that the Fund may be unable to meet its payment obligations
when they fall due under both normal and stress circumstances. The Liquidity
Risk Management Policy (LRMP) was approved by the BOT on July 6, 2017.

The Fund ensures liquidity through a combination of active management of

liabilities, a liquid asset portfolio composed substantially of deposits in
government securities and securing of money market lines. The Funding and
Liquidity Risk Framework (FLRF) and Contingency Funding Plan (CFP)
Template were approved by the BOT on November 9, 2017.

Maturity Analysis

As at December 31, 2023, the Fund’s non-current liabilities amounted to

P118.597 billion. The amounts disclosed below are the contractual undiscounted
cash flows of current liabilities in respect of balances due within 12 months.

These generally equal their carrying amounts in the SFP as the impact of
discounting is not significant.

More than three

On demand up months up to 12
to three months months
Accounts payable 59,075,546,802 36,490,191,829
Provisions 2,803,871,808 0
Customers' deposits payable 2,132,684,616 0
Insurance/reinsurance premium payable 1,460,430,817 4,381,292,452
Lease payable 629,371,417 0
Trust liabilities 266,847,768 0
Guaranty/security deposits payable 233,419,307 0
Inter-agency payables 264,562,682 0
Due to officers and employees 4,970,486 0
Other payables 8,101,484,818 13,049,821,066
74,973,190,521 53,921,305,347

To meet maturing obligations, aside from cash generated from operations, the
Fund earmarks funds and invests in assets readily convertible into cash, such as
time/special savings deposits, treasury bills, notes, bonds, both local and foreign
denominated, and equity securities. As at December 31, 2023, balances of
these assets are as follows:

Balance
Cash and cash equivalents 4,277,224,270
Investments 61,349,437,445
Restricted funds 2,454,194,542

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Operational risk

Operational risk refers to the risk of loss caused by inadequate or failed internal
processes, people, and systems, or from external events (including legal risk).

 It is inherent in all activities, products and services, and cuts across

multiple activities and operating units within the Fund.
 When controls fail to perform, operational risk can cause damage to
reputation, have legal or regulatory implications, or lead to financial loss.

The Operational Risk Management Policy (ORMP) and Reputational Risk

Management Policy (RRMP) were approved by the Board on July 6, 2017.
These are patterned from pertinent provisions of BSP Circular No. 900, Series of
2016, Guidelines on Operational Risk Management and “Designing Enterprise
Risk Management in Organizations”, an Asia Risk Management Institute (ARIMI)
module, and BSP Circular No. 747, Series of 2012, Revised Guidelines on
Compliance, and articles of other authorities on Reputational Risk Management.

Social Media Risk Management Policy and Business Continuity Management

Policy

The Social Media Risk Management Policy, adapted from BSP Circular No. 949,
and Business Continuity Management (BCM) Policy, adapted from BSP Circular
No. 951, were both approved on March 13, 2018.

Enterprise Value Risk Assessment

The ARIMI’s Enterprise Value Risk Assessment (EVRA) was the basis for
EVRA, the risk assessment process for the Fund’s operational risks. The
Fund’s EVRA was approved by the ManCom on March 26, 2018 and presented
to the BRCC and the full Board for information purposes on April 24 and May 18,
2018, respectively.

EVRA uses Organizational Context Analysis to determine the parameters within

which the organization operates and can operate.

 Customer Analysis and Business Model Analysis identify key processes

and resources critical to answering the needs of the customer in a
competitive manner while making a profit and sustaining operations over
time.
 Risk Tree Analysis identifies the causes and effects of a disruption to key
processes and resources and determines crisis management and
preventive measures.
 Only the risks that affect the key processes and resources, as well as
Black Swans, or catastrophic losses, and Blue Swans, or unexpected
opportunities, are identified, and measured in terms of likelihood and
severity, and studied for other characteristics.
 Risk evaluation and treatment are based on a one-to-five scoring for risk
likelihood and one-to-five scoring for risk severity.
 Risk profile and effectiveness of implemented controls are conducted
based on risk perspective and residual risk.

64
EVRA technical assistance are likewise conducted in preparation for audits and
to address specific Pag-IBIG unit concerns.

Cyber Risk Management Policy

The Cyber Risk Management Policy Manual was approved in August 2022. It
serves as a guide in implementing the Cyber Risk Management System in the
Fund and complements the Fund’s Information Policy of 2022 with the
cybersecurity provisions of the U.S National Institute of Standards and
Technology (NIST’s) Cybersecurity Framework.

Project Risk Management Process

In May 2023, the Project Risk Management Process was approved by the Chief
Executive Officer. It is a procedure with the corresponding prescribed forms to
capacitate Pag-IBIG units in identifying and selecting new initiatives or projects
and uses the EVRA approach in identifying, analyzing, evaluating, treating,
monitoring and reporting the corresponding possible project risks.

Reputational Risk Management Policy

The Board of Trustees approved the Pag-IBIG Fund’s RRM Policy on 06 July
2017, and the Office of the Chief Executive Officer (OCEO) approved the RRM
Procedure on 11 July 2022. The Policy and Procedure aim to proactively
address any reputational risk while simultaneously bridging the gap between the
stakeholders’ expectations and the Fund’s actual performance.

The approval of policy and procedure mandated the Risk Management Task
Force (RMTF) to ensure that the Fund has an adequate and effective risk
management system commensurate to its reputational risk-taking activities.

Market risk

Market risk is brought about by adverse movements in factors that affect the
market value of instruments, products, and transactions in an institutions’ overall
portfolio. It arises from market marking, dealing, and position-taking in interest
rate, foreign exchange, and equity markets.

The Fund’s adoption of the Full Risk-Based Pricing Model is also intended to
provide an objective pricing model, reflective of the market.

The following market risk reports are being currently generated:

a. Mark-to-market - reports the fair value of financial instruments based on

market prices.

b. Value-at-Risk (VaR) - measures the worst loss of the investment portfolio

over a one-month horizon at 95 per cent confidence level.

c. Liquidity report - shows the cash flow from the investment portfolio grouped
in different time buckets.

65
d. Duration - shows the percentage change in the value of the investment
portfolio for a 100-basis point change in interest rates.

e. Stress test - reports the worst-case loss in the value of portfolio using
scenario based on extremely probable market developments.

Market Risk Management Policy was approved by the Board on July 6, 2017.
This is patterned from pertinent provisions of BSP Circular No. 544, series of
2006, Guidelines on Market Risk Management.

Capital Management Policy (CMP)

The adoption of the Capital Adequacy Framework established the minimum

capital requirement in determining the amount of dividends to be declared. The
Fund also manages its liquidity by maintaining Capital Adequacy Ratio (CAR) of
not less than 16 per cent as directed by the BOT during its December 21, 2011,
Board meeting.

On December 20, 2016 Board meeting, the BOT approved the inclusion of
operational risk provisions in determining CAR. This is to ensure that the Fund’s
level of capital is commensurate to its exposure to credit, market, and
operational risks.

To supplement the CAR, the Fund is currently developing policies to improve

risk management, governance, and ability to absorb shocks arising from
financial and economic stress via the adoption of Liquidity Coverage Ratio
(LCR) and Net Stable Funding Ratio (NSFR).

The CMP shall guide the Fund in managing its Capital 1 (Members’
Contributions) and Capital 2 (RE) using applicable provisions of Basel Accord on
CAR - the ratio of capital to risk-weighted exposures.

The Fund shall maintain a minimum of 17.50 per cent CAR based on Capital 2
and at least 100 per cent Expanded CAR based on Capital 1 and 2, as
recommended for SIFIs.

Formula:

CAR = Capital 2 / (RWACMP + RWAORP)

Expanded CAR = (Capital 1 + Capital 2) / (RWACMP + RWAORP)

where,

RWACMP - risk-weighted assets for credit and market risk provisions

RWAORP - risk-weighted assets equivalent for operational risk provision

The RWA of the Fund for market and credit risks shall be determined by
converting its assets using the Board approved risk weights. The RWA for
operational risk shall use the Basic Indicator Approach at 12 per cent provision.

66
 The maintenance of minimum CAR and Expanded CAR level will ensure
sustainable operations that prioritize the safety of Members’ Savings and capital
commensurate to risk exposures: liquidity, market, credit, and operational risks.

On April 4, 2019, the Board approved the lowering of the minimum CAR level,
from 17.50 per cent to 12.50 per cent.

36. EVENTS AFTER THE REPORTING DATE

Dividend declaration

The BOT approved the declaration of dividends/returns for CY 2023 in the

amount of P48.760 billion or 97.86 per cent of the Fund’s net income before
MP2 returns of P49.827 billion, excluding net foreign exchange loss of P37.363
million, to be credited proportionately to the Members’ TAV.

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 Allocation of
Dividends/Returns
Pag-IBIG 1 40,713,090,227
Modified Pag-IBIG 2 8,047,078,761
48,760,168,988

The dividend rate is 6.5476207 per cent for Pag-IBIG I while the return rate is
7.05 per cent for the MP2 program.

68