CHAPTER 2

EXTERNAL ANALYSIS

In this part, the shifting factors that directly affect the banking industry in the Philippines

were being discussed and will also serve as a guide for those transacting with this kind of

industry. It will also help one to have an idea on where to trust his future plans.

A. Political – Legal Forces

Philippine Banking Laws

The Banko Sentral ng Pilipinas, as the Central Bank of the Philippines, has regulated the

Banking laws for the country to regulate the financial institution establishments here. There are

banking laws that banks, especially the commercial ones, need to be followed. These are:

1. Presidential Decree No. 129 February 15, 1973 which concerns to the governing the

establishments, its operations and the regulation of the investment houses - whereas, there

were pending before Congress, prior to the promulgation of Proclamation No. 1081,

dated September 21, 1972, urgent measures proposing the regulation of the so-called

investment banks; whereas, an extensive survey and study of the Philippine financial

system had been undertaken in order to determine its adequacy in Philippine economic

development, and an integrated set of recommendations were submitted; whereas, the

recommendations, as endorsed with modifications by the monetary authorities and made

the basis of this Decree, advocated the enactment of the statutory framework within

which the underwriting of securities may be governed and, to the extent that these entities

perform quasi-banking functions, to harmonize their operations with national monetary

goals.
2. Presidential Decree No. 1034 September 30, 1976 which is authorizing the

establishments of an offshore banking system in the Philippines - whereas, conditions

conducive to the establishment of an offshore banking system, such as political stability,

a growing economy and adequate communication facilities, among others, exist in the

Philippines; whereas, it is in the interest of developing countries to have as wide access as

possible to the sources of capital funds for economic development; whereas, an offshore

banking system based in the Philippines will be advantageous and beneficial to the

country by increasing our links with foreign lenders, facilitating the flow of desired

investments into the Philippines, creating employment opportunities and expertise in

international finance, and contributing to the national development effort; whereas, the

geographical location, physical and human resources, and other positive factors provide

the Philippines with the clear potential to develop as another financial center in Asia.

3. Republic Act No. 3591, as amended by PDIC Chapter is an act establishing the

Philippine deposit insurance corporations, defining its powers and duties and for other

purposes. It is composed of these sections:

Section  1. The Creation of the Philippine Deposit Insurance Corporation

Section  2. Board of Directors: Composition and Authority
Section  3. President of the Corporation, Compensation, Powers and Duties
Section  4. Definition of Terms
Section  5. Deposit Insurance Coverage
Section  6. Assessment of Member Banks
Section  7. Sanctions Against Unsafe and Unsound Banking Practices
Section  8. Powers as a Corporate Body
Section  9-12. Powers and Responsibilities and Prohibitions
Section 13. Permanent Insurance Fund
Section 14-16. Payment of Insured Deposits
Section 17 a-c. Corporate Funds
Section 17 d. Financial Assistance
Section 18. Authority to Borrow
Section 19. Issuance of Bonds, Debentures, and Other Obligations
Section 20. Reports
Section 21. Sanctions and Penalties
 Section 26. Separability Clause
Section 27. Repealing Clause
Section 28. Effectivity Clause

4. Republic Act No. 8791, an act providing for the regulation of the organization and

operations of banks, quasi-banks, trust entities and for other purposes.

5. Republic Act (RA) 10641, the newly enacted law liberalizing the banking industry

“should” be a welcome respite to the abysmal economic and political news - An Act

Allowing the Full Entry of Foreign Banks in the Philippines, Amending for the Purpose

RA 7721”. The act was ratified on July 21, 2014. The implications of this new law to our

banking, economic and business industries is depending on the reactions of the concerned

players in the banking sector, the entry of foreign banks to the country is an indication of

stability, or at least a good perception of our banking and finance environment. Or at

least, the thrust of the law is to promote equal opportunity for the banking sector that

would hopefully induce a more conducive business environment. The law allows up to

100-percent ownership of domestic banks by foreigners and the liberalized entry of

overseas banks and financial institutions into the country. Likewise, it is a supportive law

meant to impose the same privileges granted to local banks. As such, it is intended to

strengthen or stabilize the operation of local banks and the financing industry as a whole.

Taxes imposed on banks

Improperly accumulated earnings tax (IAET). This is imposed when the accumulated

earnings of a corporation are in excess of 100% of the paid up capital. The IAET does not apply

to listed corporations, banks and non-bank financial intermediaries, insurance companies,

companies registered with the Philippine Economic Zone Authority (PEZA), or pursuant to the
Bases Conversion Development Authority (BCDA), or other special economic zones there is an

applied 10% of the improperly accumulated taxable income.

B. Technological Forces

Though the global economy is still shaking off the effects of the past and current

financial crises, banks in both emerging and developed economies have an opportunity to

manage enormous capital growth and wealth creation. To regain customer confidence and earn

their slice of the increasingly competitive market, banks must transform themselves. Technology

has been a big help to the great improvement of banking industry in our country. Together with

the budding gadgets there is this growing technology that had invented to help our transactions

made easy and more accessible and accurate. Through the help of the new technology, the

channels of banking transactions take only a few seconds to get information and to transfer data

to one another.

At the same time, the needs and nature of the financial services customer base have

shifted dramatically. Today, 2.5 billion people―or half the world’s adults ― don‘t use formal

financial services to save or borrow. Banks are struggling to regain the trust of customers,

counter-parties, regulators and governments after the tumult of the financial system in 2008.

In a competitive landscape that favors the fastest and the smartest, banks and financial

services firms that invest in systems for sophisticated insights and predictive analytics will be

better positioned to emerge as market leaders. There are new ways to understand their customer

better, have more information for risk decision-making, and develop products precisely for the

needs of the customer.

 By using this new set of technology, the company gets a chance to maintain their good

quality of products and services to capture the attention of the clients or customers. This new

technological forces brings a positive effect as of now by providing stabilized and secure

information.

C. Economic Forces

Each one of us wants to secure our future, particularly in education, health and future

necessities. In keenness of that security, the knowledge about investing and handling financial

aspects will help us to be secure by making of proficient and suitable financial decisions that

requires significant knowledge which provides them to assure their needs and expectations.

Putting trust to a certain company which we think can handle our money well and manage it in a

good way gives its customers the.

"In investing, what is comfortable is rarely profitable." - Robert Arnott. At times,

one has to step out of his comfort zone to realize significant gains. Know the boundaries of it and

practice stepping out of it in small doses. As much as we need to know the market, we need to

know ourselves too. Can one handle staying in when everyone else is jumping ship? Or getting

out during the biggest rally of the century? There's no room for pride in this kind of self-analysis.

The best investment strategy can turn into the worst if one doesn’t have the stomach to see it

through. Securing our future is not an immature way of spending money to something; it is a

knowledgeable way of thinking that we need to secure our future that is why people are willing

to invest or save their money to the banks that are really trusted.

Inflation Rate
 The inflation rate in Philippines was recorded at 4.90 percent in August of 2014. Inflation

Rate in Philippines averaged 8.89 Percent from 1958 until 2014, reaching an all time high of

62.80 Percent in September of 1984 and a record low of -2.10 Percent in January of 1959

(National Statistics Office of Philippines).

In Philippines, the most important categories in the Consumer Price Index are: food and

non-alcoholic beverages (39 percent of total weight); housing, water, electricity, gas and other

fuels (22 percent) and transport (8 percent). The index also includes health (3 percent), education

(3 percent), clothing and footwear (3 percent), communication (2 percent) and recreation and

culture (2 percent). Alcoholic beverages, tobacco, furnishing, household equipment, restaurants

and other goods and services account for the remaining 15 percent. The link

http://www.tradingeconomics.com/philippines/inflation-cpi provides - Philippines Inflation Rate

- actual values, historical data, forecast, chart, statistics, economic calendar and news. Content

for - Philippines Inflation Rate - was last refreshed on October 4, 2014. 

Banks’ interest rate is much affected by the fluctuating rate of inflations. Also, the

inflation affects the pressure of the customer to choose saving in banks and on which company to

save their money or to trust their assets. And because of the population of the rising banks in the

industry the customers are still looking for the best one to hand over their money. Decision takes

critical analysis to pick the best decision for the security and also the return of the ones’

investment.

Population Growth

The total population in Philippines was last recorded at 97.4 million people in 2013 from

26.3 million in 1960, changing 271 percent during the last 50 years. Population in Philippines
averaged 58.72 Million from 1960 until 2013, reaching an all time high of 97.35 Million in 2013

and a record low of 26.27 Million in 1960. Population in Philippines is reported by the Bangko

Sentral ng Pilipinas.

The population of Philippines represents 1.37 percent of the world´s total population

which arguably means that one person in every 74 people on the planet is a resident of

Philippines. This page provides - Philippines Population - actual values, historical data, forecast,

chart, statistics, economic calendar and news. Content for - Philippines Population - was last

refreshed on Saturday, October 4, 2014. 

Growth in population may appear to have an impact on investment in the short spell, in

the distant future, it also strangles public finances. Therefore measures should be adopted such

that, rising unemployment rate resulting from population growth be accommodated by private

sector investments. Seemingly, structural adjustments policies implemented by the country have

had the desired investment effects. The mounting of the population is an indicator that the

company needs to develop and value their services for the better understanding of the customer.

Keeping the customer’s trust is the best thing that the company could make. It needs to show that

the trust of the customer is what the truly values by giving a good response to them.

Employment Rate

The employment rate in the Philippines this July 2014 is estimated at 93.3 percent.  This

estimate is based on the July 2014 round of the LFS (Labor Force Survey) which did not cover

the province of Leyte.  The employment rate for the same month of 2013, computed using data

from the July 2013 LFS that includes the province of Leyte, was 92.7 percent. Using data from

the same LFS round, but excluding data from the province of Leyte, the employment rate for
July 2013 is also estimated at 92.7 percent.  In this report, for purposes of comparing with the

July 2014 results, the July 2013 labor and employment indicators were computed using the July

2013 LFS data that excludes those for the province of Leyte.

Three regions, namely, National Capital Region (NCR) (89.7%), Central Luzon (91.7%),

and CALABARZON (92.0%) had employment rates lower than the national figure.  The labor

force participation rate (LFPR) in July 2014 is estimated at 64.4 percent, up from the LFPR in

July 2013 which was estimated at 63.9 percent.  The labor force consists of the employed and the

unemployed.

Philippines jobless rate kept its downward trend to 6.7 percent in July of 2014 from 7

percent in April, as more people were employed in the services and industry sectors. Figures for

the province of Leyte which was hit by typhoon Haiyan are not included. 

Among unemployed people, 63.3 percent were males. The age group 15 to 24 years old

accounted for 49.3 percent of total unemployed, while the age group 25 to 34 accounted for 30.8

percent. By educational attainment, 23.2 percent were college graduates, 13.2 percent were

college undergraduates, and 32.1 percent were high school graduates.

Among regions, the National Capital Region (10.3 percent), Central Luzon (8.3 percent),

and Calabarzon (8.0 percent) showed unemployment rates higher than the national figure (6.7

percent).

D. Socio – Cultural Forces

Probably Filipinos usually say, “Tsaka na ko mag- iinvest kapag may ipon na ako.” Well

actually one can save money whenever they can by careful planning and knowledge they can be

bound to financial freedom. Usual thing that Filipinos do is to save money in piggy banks
wherein every single coin is very much counted. But those piggy bank days were over for it is

now the generation on which Juan is wiser, more knowledgeable and planning for his future

better than before.

Living in the Philippines it is understood that one have to pay the bills, rent or house

mortgage, transportation and give money to the family but at the end of the day, what is left to

Juan? There is this knowledge that Filipinos were adopting today, first is to save at least 20% and

deposit it directly to savings account. This will not only one to jump start investment, but will

also have enough money to cover for any emergencies that will happen in the future. Second is

lessen the expenses, since having a raise happens once a year, the best way to save money is to

lessen the expenses by planning meals, trying to stay at home more on the weekends, buying

locally branded products, and cutting down cable and landline. Third is get easy money by

placing a jar at home and whenever one have spare change he earns from public transport put it

there and you will be surprised on how much you will be saving. The common thing that

Filipinos usually lack is the knowledge on how to save money which is not actually the problem.

Acquiring knowledge on how to save money is only 10% of the battle and the rest goes to the

discipline we put in saving money itself.  

E. Environmental Forces

The most unpredictable and great threat to companies that will possibly affect its

operations is the environment as no one knows what will happen in future. Belongs to which are

the natural calamities and the health status of its market. When natural calamities attacks and

gives people damages whether property or lives, it directly affects their financials as well as

when there is an epidemic or contagious disease spreading. With these people - especially the
banks’ clients - are more likely will decrease their transacting ability. This force elicits the

company’s best ideas and can prove how well-built and how good the company manages the

different forces given by environment. This also makes them analyze what strategies to start on.