DECASA, ERICA J.

CBET 01 401E
CHAPTER 6
THE PHILIPPINE FINACIAL SYSTEM

1. Compare the function of a commercial bank with the function of a universal bank.

Commercial bank or domestic bank (DB) is any commercial bank that is confined
only to commercial bank functions such as accepting drafts and issuing letters of credit,
discounting and negotiating promissory notes, drafts and bills of exchange, and other
evidences of debt, accepting or creating demand deposits, receiving other types of
deposits and deposit substitutes, buying and selling foreign exchange, and gold or silver
bullions, acquiring marketable bonds and other debt securities , and extending credit
subject to such rules that the Monetary Board may promulgate while a universal bank
(UB) or expanded commercial bank (EKB) is any commercial bank, which performs the
investment house function in addition to its commercial banking authority. It may invest
in the equities of allied and non-allied enterprises. Allied enterprises may either be
financial or non-financial.

2. Enumerate 3 government banks.

 Government Service Insurance System (GSIS)
 Social Security System (SSS)
 Pag-ibig

3. Which of the following is not a thrift bank?

a. Private development bank
b. Stock savings and loan associations
c. Stock savings and mortgages banks
d. Cooperative banks

4. A bank which caters to farmers businessmen and cottage industries in the rural areas
a. Rural bank
b. Cooperative bank
c. Saving and loans association
d. Development bank of the Philippines

5. Which of the following is not a government bank?

 a. Land Bank of the Philippines

b. Al-Amanah Islamic Investment Bank

c. Philippines National Bank

d. Development Bank of the Philippines

6. Which if the following is not a government agency that regulates financial institutions?

a. Insurance Commission

b. Bangko Sentral ng Pilipinas

c. Securities and Exchange Commission

d. Bureau of Internal Revenue

7. Explain briefly how the following regulatory agencies intend to align their policies, roles
and practices with global standards.

a. BSP

The BSP has released Circular No. 975 in October 2017 to streamline the
requirements on the issuance of bonds and commercial papers by banks and quasi-
banks and Circular Nos. 984 and 985 in December 2017 in furtherance of liberalizing the
foreign exchange (FX) regulatory framework. It has also set the target to 01 September
2018 for banks to comply with the revised rules on liquidity risk management anchored
on the Principles for Sound Liquidity Risk Management and Supervision under the Basel
III reform agenda.

b. SEC

The SEC approved amendments to the Securities Regulation Code (SRC) and the
Corporation Code as well as supporting the bills on regulating Collective Investment
Schemes to enhance local regulations and conform to international best practices.
Considering the rising popularity of crypto currency, the SEC is also studying the ideal
regulatory treatment of visual currencies (VCs) from the perspective of investor
protection. For interne-based scams, the SEC coordinates with the Philippine National
Police and the National Bureau of Investigation which possess the resources and
expertise to assist in the investigation of cybercrimes committed by online
organizations.
 c. Insurance Commission

A key priority of Insurance Commission (IC) is the adoption of international

reporting practices. The IC is preparing for the implementation of the Philippine
Financial Reporting Standards by the Financial Reporting Standards Council that will be
applied to insurance companies. For subsidiaries and branches of Global Systemically
Important Insurers operating in the Philippines, the IC requires keeping reserves to pay
policyholders in the event of insolvency and has set the guidelines for the orderly
acquisition, merger, consolidation, sale of insurance portfolio, and exit from the
domestic insurance business should another financial crisis global in scale triggers a sell-
off.

8. Discuss briefly the following current risks in the Philippines Financial system

a. Repricing, refinancing and repayment risks

Several jurisdictions have pointes to various sources of risks that heighten

financial stability concerns. These are:

i) The normalization of US monetary policy creates the incentive for global capital
flows to be directed towards the US, affecting asset and currency prices along the
way.
ii) A slowdown in global growth and deceleration of international trade will undermine
the growth of many economies.
iii) Higher debt levels across countries will continue to leave economies vulnerable to
the changes in the growth outlook and the (continuing) rise in interest rates.

The risks flagged by other jurisdictions highlight the fact that global
developments largely affect the domestic economies. The impact, however, is much
more significant for a small and open economy such as the Philippines which is a price
taker, rather than a price setter. There are risks with rising Philippines interest rates and
a local currency (LCY) that continues to depreciate against the US dollar. Drivers of
growth are shifting from quarter to quarter and the authorities need to be cognizant of
the factors that could derail the growth momentum. All of these market changes have
to be understood in the context of repricing, refinancing and repayment risks.

b. Developments in the credit system

Local intermediation continues to be peso-funded but with some support from

foreign currency (FCY) sources. The total loan portfolio of the banking system increased
significantly over the years and is principally funded by peso deposits. Looking at the
spot and forward rates in the currency and interest rate markets, the incentive would
have been to borrow on Philippine peso and to invest these in US dollar instruments.
Yet, this is not the case and instead, banks have increased their FCY debts to augment
the growth in domestic currency loans.

c. Increasing demand for credit by corporate business and households

This funding strategy is a clear positive vote for local economic activity.
Specifically, non-financial corporation’s (NFCs) and households account for a significant
portion of the incremental loans provided by the banking system. As a matter of fact,
firms listed in the PSE15 exhibited a rising debt-to-equity ratio, from about 45 percent in
2008 to mor than 86 percent as of end-March 2018.