NATURE AND BACKGROUND OF THE SPECIALIZED INDUSTRY

Nature:

The Philippine banking industry has always played a substantial role in sustaining the pace of
growth of the country’s economy. The entire banking sector is supervised by the Central bank
of the Philippines, Bangko Sentral ng Pilipinas, while the overall industry is segmented and
variegated as under:

45 Commercial and Universal banks together hold around 90% of the total market share of
banking industry in the Philippines. In 2017, there were 40 commercial and universal banks.
These banks claim a lion’s share of the total deposits available to whole banking industry. Their
area of services ranges from wholesale, retail and corporate banking to treasury, trade,
underwriting and investment advisory. Some top commercial and universal banks (on the basis
of available assets) in the Philippines are: Metropolitan Bank and Trust, Land Bank of the
Philippines, Banco de Oro Unibank, Philippine National Bank and Bank of the Philippine Islands.

There are 406 Rural and Co-operative banks in the Philippines. These banks are responsible for
development of rural areas and their economies by providing basic financial services to rural
populace. The major difference between rural and co-operative banks is the nature of their
ownership. Rural banks are owned by the private individuals while co-operative banks are under
the ownership of co-operative societies. Notably, the number of rural and co-operative banks
is down from 479 in 2017. It would be interest to attempt to establish a plausible relationship
between the decline in this number with the GDP growth in rural areas.

Thrift banks in the Philippines are further categorized into Private development banks, Savings
and mortgage banks, Loan associations, stock savings and microfinance saving banks. Their
major activities include collection of deposits from small savers and investing them into
profitable portfolios. These banks are also engaged in providing trade services to small and
medium-sized enterprises and individual entrepreneurs.

Emerging business segments in banking industry include:

A form of partnership or association between a financial institution and an insurance company;

where banks offer insurance products through their platform to their customers. In recent
years, the Bangko Sentral ng Pilipinas has received numerous applications both from local and
foreign banks seeking approval for provision of Bancassurance services through their platforms.

Mobile banking or Branchless banking: a relatively new form of service where banks or financial
institutions allow their customers to conduct financial transactions through their mobile devices.
Mobile banking can be carried out in collaboration with telecom industry and is far away from
the traditional brick-and-mortar banking structure.

Retail Wealth Management: Wealth management services and Retail investment advisory is
provided to young or new investors showing interest in mutual fund units and other such
financial products.

Microfinance: This is one of the fastest growing businesses not only in the Philippines but is also
attracting the whole world’s admiration. As per the latest report of the Central bank, there are
more than 200 microfinance institutions working in the country, that has lent around $250
million to 1 million borrowers.

The Covid-19 pandemic has brought to question the sustainability of current micro-finance
practices — prudence in credit has given way to predatory lending that has found its way
unbeknownst to those who had no option, were uninformed, and were led to the debt trap
spiral perpetuated by a system that were stacked against them.

https://www.creditbpo.com/blog/overview-ph-banking-industry

Background:

 The first organized credit institutions were established in the Philippines during the 16 th
century Spanish colonial era. These were the OBRAS PIAS.
 Obras Pias was a charitable foundation during the Spanish period. The word itself means
works of piety in Spanish. The Church directed a share of personal fortunes to its
charities such as the Obras Pias. Donors had specified that the funds are to be used for
charitable, religious and educational purposes. However, some of the funds were
managed by confraternities that invested capital in secular activities like underwriting
cargoes for the Galleon trade
 In 1869, the opening of the Suez Canal facilitated trade between the Philippines and
Europe. The Philippines then attracted British capital, and in the years that followed, the
Chartered Bank of India, Australia, and China (now known as the Standard Chartered
Bank) and the Hong Kong and Shanghai Banking Corporation (HSBC), both British-
owned banks, opened their branches in Manila.
 By the end of the Spanish regime, the banks inexistence was: El Banco Español Filipino
de Isabel II (now the Bank of Philippine Islands or BPI) which was given the sole
mandate under a Spanish Royal Decree of 1854 to issue banknotes called Pesos Fuertes;
the Chartered Bank of India, a branch of the HSBC; the Montede Piedad; and the Banco
Peninsular Ultamarino de Madrid
 During the American colonial period, banks from the USA started to establish local
branches that would cater to growing American economic interests and capital inflow
into the country. The American Bank was first to open a branch in 1901. However, it
was placed under receivership by the Insular Treasurer for making doubtful loans after
only 4 years of operations.
 In 1916, the Philippine National Bank was established with the Philippine Government as
the majority stockholder. This is to break the foreign banking monopoly and remedy the
lack of credit facilities.
 The PNB was meant to function as a government enterprise that would widen the
variety of banking services “beyond trade finance in exportation and importation, money
changing of foreign currency, and fund transfers, all of which, while useful in the short
term, failed to mobilize capital in the development of natural resources.”
 It’s charter at that time empowered PNB to issue bank notes and act as a depository of
government funds.
 At the turn of the 20th century, the Americans established the Guaranty Trust
Corporation (GTC) and International Banking Corporation (IBC). The existence of GTC
 was short-lived, while IBC was eventually taken over by the National City Bank of New
York (now known as Citibank).
 In 1918, the Manila branch of the Yokohama Specie Bank was given license to do
business in the Philippines.
 Between 1935 to 1946, more foreign bank branches were established in the Philippines.
These include the Bank of Taiwan, and the Nederlandsche Indische Handelsbanks.
 In 1939, the government created the Agricultural and Industrial Bank to absorb the
functions of the National Loan and Investment Board and to harness government
resources.
 The Philippine Bank of Communications is the first bank with genuine Filipino private
capital. However, it was temporarily closed at the outbreak of WWII.
 Only Filipino-owned and Japanese banks were allowed to operate during WWII; The
Chartered Bank of India, Australia, and China, HSBC, and the National City Bank of New
York were all treated as enemy properties and placed under liquidation by the Japanese
Military Government.
 On the other hand, the Nampo Kaihatsu Kinko (Southern Development Bank) opened a
Manila branch in 1942 and acted as the Japanese government’s fiscal agent in the
Philippines.
 After the liberation, all domestic banks that operated during the Japanese occupation
were unable to reopen because the greater part of their assets consisted of worthless
Japanese war notes, bonds, and obligations of the Japanese-sponsored republic, and
balances with Japanese banks.
 In 1947, a branch of the Bank of America was allowed to establish a branch in Manila
and in the following year, it absorbed the assets and liabilities of the local branch of the
Nederlandsche Indische Handelsbanks.

https://www.scribd.com/presentation/367998787/History-of-Banking-in-the-Philippines#

SAMPLE AUDITED FINANCIAL STATEMENTS

https://www.securitybank.com/wp-content/uploads/2022/03/Audited-Financials-2021.pdf