Philippine Financial System

(Summary)

History
Obras Pias (pious works) – by laymen religious orders during 16th Century; sole source of commercial credits;
provides 50% for all bank capital.
Rodriguez Bank – 19th Century, more of a loan association than a regular bank
Board of Authorities (Junta de Autoridades) in Manila – Aug 1, 1851; 1st state bank in the Philippines
British-Orient banks opened in Phil. – 1873; due to expanded Philippine-European trade
Suez Canal – 1869
Chartered Bank of India, Australia, & China – 1872 (Manila) later in Ilo-ilo & Cebu
Hongkong & Shanghai Banking Corporation – Manila 1875
Monte de Piedad y Caja de Ahorros (Monte de Piedad & Savings Bank) – 1882 unique combination of saving bank
& pawnshop
Banco Espanol-Filipino de Isabel II (Bank of the Philippine Islands) – Jan 1, 1912; currently the oldest existing bank
in the country;
American Occupancy – opened seven domestic private banks and Banches of Japanese & Chinese banks
Central Bank of the Philippines – created after American regime; establishing monetary system in the country;
sole authority to issue republic’s new paper money, regulate & supervise the country’s banking system;
started the growth of rural banking system, savings & loan association and specialized government banks

Banking
- service performed by the financial institution primarily concerned with safekeeping of funds through acceptance
of deposits of money, & provision of credit through lending of money.
- assist in mobilization of funds needed for various industries
- relationship with clientele is based on confidence & trust involving the highest degree of good faith & loyalty to
the welfare of depositors

Bank Services: receiving, collecting, transferring, paying, lending, investing, dealing, exchanging & handling money
(safe deposit, custodianship, agency, trusteeship) and money claims (domestic & international)

Types of Bank Institutions:

a. Commercial Banks (regular commercial banks & expanded commercial banks or universal banks)
- widest range of function (savings & time deposit; loans to all types of business firms; foreign exchange;
deposit box; finance & facilitate international trade)
- Universal Bank carry expanded authority to perform function of investment house like underwriting &
securities dealership and investing equities.
b. Thrift Banks (stock savings & loan-association, savings & mortgage banks and private development banks)
- savings & mortgage banks, stock savings & loan association, and private development banks
- they grand loans; invest in readily marketable bonds & debt securities; commercial papers & account
receivable, draft & bills exchange; issue domestic letters of credit.
- cannot engage in international banking operation
c. Rural Banks (Regional unit banks)
- serve the needs of people in the rural areas
- (1) grant short-term loans to farmers, merchants & cooperatives to finance business aimed at
countryside development
- (2) accept savings & time deposit for local development
- (3) channel for disbursement & collection of supervised credit programs
- (4) correspondents for other financial institution
 d. Specialized government banks (DBP, Land Bank, & Philippine Amanah Bank)
- created by government for specific purposes under special charters
(1) Development Bank of the Philippines (1946) – Rehabilitation Finance Corp attending to requirements
of rehabilitation & development after World War II. Today, tasked development of agriculture,
industry & low-cost housing
(2) Land Bank of the Philippines (1963) – provide adequate financial support to Agrarian Reform Program
(3) Philippine Amanah Bank (1974) – promote & accelerate socio-economic development of Mindanao.

Commercial Bank Deposits:

1. Demand deposit – current accounts or checking accounts
2. Time deposit – accounts with a maturity date at higher interest rate
3. Savings deposit – no maturity date & has lower interest rate than time deposit; also known as ‘callable’ account

Bangko Sentral ng Pilipinas (BSP)

- responsible for maintaining price stability to balanced & sustainable growth of economy
- keeps prices of goods & services steady at reasonable level
- provides policy directions in areas of money, credit & banking
- Republic Act 7653 (New Central Bank Act), allows the BSP to regulate operations of finance companies & non-
bank financial institution

Important Functions of BSP:

1. The Money Manager – manages the amount of money available to the public to keep prices from increasing
2. The Supplier of Money – only BSP can legally issue money in paper notes & coins in amounts consistent with
the country’s economic program
3. The Banker’s Bank – grants loans to and accept deposits only from banks.
4. The Supervisor of All Banks – regularly monitors and examines operations of banks as well as compliance with
rules & regulations
5. The Main Bank of the Government – official depository of government tax collections, proceeds of government
sales security & foreign loans

The BSP Monetary Board is the policy-making body of the Bank

The Members are:

1. BSP Governor who is concurrently the chairman of the Board
2. Five full-time members from the private sectors
3. One member from the cabinet

The officers & employees – implement its policies & regulations, as well as running the day-to-day operations

Deputy Governor – heads each Bank’s three major operating sectors:

1. The Banking Service Sector – serves the banking needs of all banks
2. The Supervision and Examination Sector – enforcing banking laws & monitoring compliance so as to promote
safe & sound banking system
3. The Resource Management Sector – serves the personnel, security & transport, computerization, building &
facilities and other administrative needs of BSP
4. Offices under the Governor:
a. Treasury Department – manages the Bank’s Treasury holdings
b. Department of Economic Research – monitors economic statistics to draw-up proper monetary policies
c. Public Information, Relations and Special Events Office (PIRSEO) – serves as the public relations of bank
d. Internal Audit Office – checks if BSP is doing its job according to mandate
Three main pillars of BSP to carry its mandate:
1. Price Stability – formulate & implement policy in the areas of money, banking and credit w/ the primary
objective of preserving price stability (the condition of low & stable inflation)
2. Financial Stability – supervises banks, quasi-banks & their subsidiaries as well as affiliates by ensuring
compliance to rules & regulations
3. Efficient Payments and Settlement System – PhilPaSS (Philippine Payments and Settlements System) is the real
time gross settlement system operated and maintained by BSP.

The Monetary Board