MODULE ON BANKING AND FINANCIAL INSTITUTION

ADDENDUM:
PART I

The Philippine Financial System

Structure of Financial System

A. Bangko Sentral ng Pilipinas (BSP) – as the bank of banks, it occupies the most portion of the
structure. It exercises its mandate of supervision among the bank and non-bank financial
institutions.
B. Banking Institutions - These institutions are allowed to collect savings and time deposits in order
to finance loans and also perform the function of providing credit and payment services.

B.1. Private Banking Institutions

 Universal Banks – are banks that offer the three main services of a bank - wholesale
banking, retail banking, and investment banking. Wholesale banking involves
borrowing and lending large amounts. While retail banking provides services to
the public. And for investment banking, provides services to major investors and
companies.
 Commercial Banks – is a financial institution that takes deposits from individuals,
companies, and organizations and lends money to its clients in the form of loans,
as opposed to investment banks dealing with securities, mergers and acquisitions,
and asset management.
 Thrift Banks
 Stock Savings and Mortgage Bank – organized to accumulate deposits
from savings and invest them in readily marketable investments.
 Savings and Loan Association – organized to accumulate savings from its
members and using the accumulated funds for loans and investments.
 Private Development Banks – are banks that exercise all the powers and
assume all the obligations of the savings and mortgage bank. Its function
is to help construct, expand and rehabilitate agriculture and industry.
 Rural Banks – are banks authorized by the BSP to make credit available to farmers,
businessmen, and cottage industries in the rural areas.
 Cooperative Banks – are banks that are established to assist cooperatives by
lending at reasonable interest rates.
B.2 Government Banking Institutions
 Land Bank of the Philippines – it provides financial support in the implementation
of the Comprehensive Agrarian Reform Program (CARP) of the government. It
was created under Section 74 of RA 3844 which was approved on August 8, 1963.
 Development Bank of the Philippines – provides loans for development purposes
and loans for sectors of agriculture, commercial, and industrial. It started in 1935
and operated as the National Loan and Investment Board (NLIB). In 1939, the
functions of the NLIB were absorbed by the Agricultural and Industrial Bank
(AIB). In 1947, Rehabilitation Finance Corporation (RFC) was created by the
government under the RA No. 85 which absorbed the function of the AIB. In 1958,
RFC was reorganized into the Development Bank of the Philippines which marked
the shift from rehabilitation to broader activities. The charter of the DBP was
revised under the administration of Pres. Aquino under EO No. 81 and later
amended by RA No. 8523 under the administration of Pres. Ramos in 1998 paved
the way for the pursuit of other activities that allowed the Bank to fulfill its
development mandate more meaningfully.
 MODULE ON BANKING AND FINANCIAL INSTITUTION

 Al-Amanah Islamic Investment Bank – its charter was created under RA No. 6848
which was approved on January 26, 1990 making the bank a Universal Bank. As
stated in Section 3, the primary purpose of the Islamic Bank shall be to promote
and accelerate the socio-economic development of the Autonomous Region by
performing banking, financing and investment operations and to establish and
participate in agricultural, commercial and industrial ventures based on the Islamic
concept of banking.
C. Non-Bank Financial Institutions – according to the Worl Bank, a non-bank financial institution
(NBFI) is a financial institution that does not have a full banking license and cannot accept deposits
from the public. However, NBFIs do facilitate alternative financial services, such as investment
(both collective and individual), risk pooling, financial consulting, brokering, money transmission,
and check-cashing. NBFIs are a source of consumer credit (along with licensed banks).
C.1 Private Non-Bank Financial Institutions
 Investment House – it is an enterprise engaged in underwriting securities of other
corporations.
 Financing Company – it is an enterprise that extends credit facilities either by
discounting or factoring of accounts or commercial papers, buying installment
contracts, lease, and chattel mortgage to individuals and to commercial, industrial,
and agricultural entities.
 Securities Dealer – it includes individuals or firms engaged in buying and selling
securities thereby making a profit from the difference of the cost of buying and
selling.
 Securities Broker - it includes individuals or firms that facilitate securities
transactions and earns through commission.
 Non-Stock Savings and Loan Association and Cooperative Credit Unions –
business engaged in accumulating savings from the members and lends the
accumulated funds to its members/depositors.
 Building and Loan Associations – Act No. 1459, Section 171 states that Building
and Loan Corporations are corporations whose capital stock is required or it is
permitted to be paid by the stockholders in regular, equal, periodical, payments
and whose purpose is to accumulate the savings of its stockholders, to repay to said
stockholders their accumulated savings and profits upon surrender of their stock,
to encourage industry, frugality, and home building among its stockholders, and to
loan its funds and fund borrowed for the purpose to stockholders on the security of
unencumbered real estate and the pledge of shares of capital stock owned by the
stockholders as collateral security, shall be known as building and loan
corporations, and the words "mutual building and loan association" shall form part
of the name of every such corporation.
 Pawnshop – is a business engaged in lending money to an individual who brings
valuable items as collateral like jewelry, television, cellphone, camera, appliance,
etc.
C.2 Government Non-Bank Financial Institutions
 Social Security System (SSS) – RA No. 11199 otherwise known as “Social
Security Act of 2018” amending RA No. 8282 known as “Social Security Act of
1997”, states that the system has the mandate of promoting social justice through
savings, and ensure meaningful social security protection to members and their
beneficiaries against the hazards of disability, sickness, maternity, old age, death
and other contingencies resulting in loss of income or financial burden.
 Government Service Insurance System (GSIS) – it provides retirement benefits,
housing loans, personal loans, emergency and calamity loans to government
 MODULE ON BANKING AND FINANCIAL INSTITUTION

employees. It was established under Commonwealth Act No. 186 otherwise known
as the “Government Service Insurance Act.” Later on, CA No. 186 was revised by
the issuance of Presidential Decree No. 1146, and on May 30, 1997, Republic Act
No. 8291 was approved that amended the 20-year-old revised charter of the
system.
 Home Development Mutual Fund (HDMF) – popularly known as Pag-IBIG Fund.
It was established on 11 June 1978 by virtue of Presidential Decree No. 1530
primarily to address the need for a national savings program and an affordable
shelter financing for the Filipino worker.

References:

https://www.worldbank.org/en/publication/gfdr/gfdr-2016/background/nonbank-financial-institution

https://www.sss.gov.ph/sss/appmanager/pages.jsp?page=sssmandate

https://www.gsis.gov.ph/about-us/gsis-laws/?csrt=15793117448311426986

https://www.pagibigfund.gov.ph/history.html

Laman, Marie B. (2015). Money, Credit and Banking. GIC Enterprises & Co., Inc. Manila, Philippines.
ISBN 978-971-9919-94-0