Presented by Group 5

The Philippine
Financial System
Learning 01. Describe the Philippine
Financial System

Objectives
At the end of the discussion we will 02. Justify the functions of
the Financial System

be able to:

And elaborate the

03. Philippine
System History.
Financial
 THE PHILIPPINE
FINANCIAL SYSTEM
·The Financial System of the Philippines serves as the catalyst in the
country’s growth and development.

·It is in charge of the country's liquid reserves and is based primarily on

public trust.

·BANKS – accepts deposits from the general public and provide these
depositors with reasonable earnings as well as access to their funds.
 BANK’S TWO
MAJOR ROLES
As participants, particularly in the money
creation process; and

As intermediaries in the Savings-

Investment process.
 ·Bankers Association of the
·The financial crisis of 2008, Philippines (BAP) President
often referred to as the Great Aurelio R. Montinola III says the
Recession, was a worldwide Philippine banking system
economic crisis triggered by the remains constable, as he points
collapse of major financial out that the industry was Past
institutions and had significant required by monetary authorities

RP BANKS SAIL
impacts on the global economy. to increase capital in the
aftermath of the equally cata-
Panstrophic Asian financial crisis.

THROUGH ROUGH
FINANCIAL SEAS
·“The Philippine banking system
IN 2008 ·Another key point is that
Philippine companies have
is in comfortably manageable become much stronger than they
state from a capital and liquidity were 10 years ago, allowing them
standpoint, and our past to look for other sources of
investments in banking and financing other than self-
other financial reforms have generated funds or through the
helped shield us from commer- cial banks.
catastrophic fall.
HISTORY
·The Philippine banking history traces its origin to the
16th century with the organization of obras pias

·The first bank, Español-Filipino de Isabel II (now the

bank of the Philippine Is- lands), was established in
1851, and since then the banking mechanism has
evolved into a complex system to parallel the
development and growth of the country's economy.
 The Financial
System
The components of the Financial system are:

Banks (Banking Sector)

Non-Bank Financial Institutions (Non-

Bank Sector)
Financial Sector Reforms
in Recent Years
A number of path breaking reforms were undertaken in recent years to
enhance the performance of the financial system;

·The establishment in 1993 of the BSP as the central monetary authority of

the Philippines under RA. 7653.
·The liberalism of the entry of foreign banks under R.A. 7721 dated May
18,1994 after more than four decades of prohibition.
·The deregulation of bank branching that made it easier for banks to
establish their office network nationwide.
·The gradual reduction in legal reserve requirement from 25% in 1990 to the
present 14%
TYPES OF BANKS
Expanded Commercial
Banks or Universal
Banks
Expanded Commercial Banks offer the wide variety
of banking services among financial institutions.
The banking reforms introduced expanded
commercial bank or Unibanks, which, in addition to
the powers of commercial banks can engage in:
underwriting activities
equity investments in non-allied undertaking,
and
up to 100% equity investments in financial
intermediaries other than commercial banks.
Commercial Banks
The Commercial banks constitute the bulk of
the banking system. These are institutions
that accept deposits, which are subject to
withdrawal by checks. But they also perform
other functions:
lending essentially on short term basis
accept drafts and letters of credit
discount and negotiate promissory notes,
drafts, bills of exchange
other form of indebtedness
Specialized
Government Banks
These are unique government banks which are
subject to the supervision and regulation of the
BSP. These are: The Veterans Bank of the
Philippines which was established as a commercial
bank.

Important specialized government institutions:

(a) Development Bank of the Philippines (DBP)
(b) Land Bank of the Philippines (LBP)
(c) Philippine Amanah Bank
Thrift Banks
Thrift banks, also known as savings and loans
associations (S&Ls), or simply thrifts, are
financial institutions primarily funded by
consumer deposits. A thrift specializes in
offering savings accounts and originating
home mortgages for consumers.

a. Savings and Mortgages Banks

organized primarily to accumulate the
savings of depositors and to invest them
together.
Small Private Banks
Two major innovations undertaken in the
Philippine financial system are the creation of
small rural or town units that did not have the
services provided by normal banking institutions.

(a) Rural Banks and Cooperatives

-were designed primarily to mobilize rural
savings by accepting savings and time deposits
and to provide a channel for funds from urban
areas and the government sector for agriculture
and individual activities in the countryside.

(b) Private Development Banks (PDBs)

-PDBs cater particularly to the medium and
long term financing needs of Filipino
entrepreneurs.
 The Banking Sector
Banking Laws

The principal laws governing banks in the Philippines are the New Central
Bank Act, which defines the power of the Bangko Sentral ng Pilipinas
(BSP) in the administration of the monetary, banking and credit system.

General Banking Act which regulates the operations of the banks and
other financial institutions.
The Bangko Sentral ng
Pilipinas
It provides policy directions in the areas of money,
banking and credit. It has supervision over the operations
of banks and exercise regulatory powers over the
operations of non-bank financial institutions performing
quasi-banking functions.

Its objectives are:

a. To maintain price stability conducive to a balanced and
sustainable growth in the economy.

b. To promote and maintain monetary stability and the

convertibility of the peso to other freely convertible
currencies.
 The Philippine Deposits
Insurance Corporation (PDIC)
The PDIC is the official insurance corporation of the banking system. It
requires insured banks to pay an assessment rate so that their deposits are
insured up to P500,000 per depositor.

It may also conduct independent information and reports from insured banks
wherever deemed necessary by the PDIC’s board of directors.
The Securities and Exchange
Commission (SEC)
Specifically, the SEC issues certificate of incorporation to financial
corporation, votes on and approves amendments thereto, discharges other
functions in connection with the licensing of financing companies and
investment houses, and supervises and regulates their specific areas of
operation. Any corporation desiring to issue commercial papers is required
to apply for registration with the SEC.
 Historical Background
The Securities and Exchange Commission (SEC) was established on October
26, 1936 by the virtue of the Commonwealth Act No. 83 or the Securities
Act. Its establishment was prompted by the need to safeguard public
interest in view of the local stock market boom at that time.

Operations began on November 11, 1936 under the leadership of

Commissioner Ricardo Nepomuceno. Its major functions included
registration of securities, analysis of every registered security, evaluation
of the financial condition and operations of applicants for security is-sue,
screening of applications for broker's or dealer's exchanges.
MISSION-VISION
MISSION
To strengthen the corporate and capital market
infrastructure of the Philippines, and to maintain a
regulatory system, based on international best
standards and practices, that promotes the
interests of investors in a free, fair and
competitive business environment.

We shall be guided in this mission by the values of

Integrity, Professionalism, Accountability,
Independence and Initiative.

Integrity
We are morally upright, honest and sincere in our
private and public lives.
Professionalism
We consistently implement the law, provide timely
and accurate information to investors, and render
efficient and competent service to the public

Accountability
We abide by prescribed ethical and work standards
in government service.

Independence
We act without fear or favor, and render sound
judgment in the performance of our duties and
responsibilities.

Initiative
We are strategic and forward-looking in the
fulfillment of our developmental and regulatory
functions.

Vision
We foresee that, by December 31, 2008, the Self-
Regulatory Organizations will be able to function
effectively and maintain discipline within their
ranks with minimal intervention from the
Securities and Exchange Commission.
 Powers and Functions of
SEC The Commission
shall have the powers and functions provided by the Securities Regulation
Code, Presidential Decree No. 902-A, as amended, the Corporation Code, the
Investment Houses Law, the Financing Company Act, and other existing
laws. Under Section 5 of the Securities Regulation Code, Rep. Act 8799, the
Commission shall have, among others the following powers and functions:

(a) Have jurisdiction and supervision over all corporations, partnerships or

associations who are the grantees of primary franchises and or license or
permit issued by the Government;
(b) Formulate policies and recommendations on issues concerning the
securities market, advise Congress and other government agencies on all
aspects of the securities market and propose legislation and amendments
there to:
 (c) Approve, reject, suspend, revoke or require amendments to registration statements, and
registration and licensing applications;
(d) Regulate, investigate or supervise the activities of exchanges, clearing agencies and other
SROS;
(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and
other SROS;
(f) Impose sanctions for the violation of laws and the rules, regulations and orders issued
pursuant thereto:
(g) Prepare, approve, amend or repeal rules, regulations and orders issue opinions and provided
guidance on and supervise compliance with such rules, regulations and others:
(h) Enlist the aid and support of and/ or deputize any and all enforcement agencies of the
government, civil or military as well as any private institution, corporation, firm, association or
person in the implementation of its powers and functions under this code;
i) Issue cease and desist orders to prevent fraud or injury to the investing public;
(j)Punish for contempt of the Commission, both direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision;
 (l)Issue subpoena deuces tecum and summon witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the examination, search and seizure of all documents,
papers, files and re-cords, tax returns, and books of accounts of any entity or person under
investigations as may be necessary for the proper dispositions of the cases before it, subject to
the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing, the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds provided by
laws; and
(n) Exercise such other powers as may be provided by law as well as those which may be implied
from, or which are necessary or incidental to the carrying out of, the express powers granted the
Commission to achieve the objectives and purposes of these laws.
Non-Banking Financial
Institutions
The Philippine banking
system has grown in
great diversity with
banking system being
specialized.
Government Non-Bank
Financial Institutions
The banking system evolved alongside other financial
institutions, such as the Government Service Insurance
System (GSI) and the Social Security System (SSS).
These institutions were established to protect
employee welfare and generated large funds from
insurance premiums. GSIS and SSS generate forced
savings to fund retirement benefits for members, while
SSS invests 60% of its portfolio in interest-earning
notes receivables. New social welfare programs
emerged, such as Workmen's Compensation Programs
and Medicare, which generate trust funds to insure
workers against accidents and pay for medical care
programs. The latest financial institution is the PAG-
IBIG fund, which provides housing loans to its members
based on a payroll deduction. Both systems provide
benefits for policyholders and invest trust funds
generated from periodic social security contributions.
The Non-Bank
Financial Institution
Sector
Component institutions are not banks, but
currently are subject to regulation by the BSP.
These are sub-divided into two groups:

(1) those that engage in the lending of funds

obtained from the public by issuance of their
own debt instruments (quasi-banking), and

(2) those that engage in the lending of funds

from sources other than the public. However,
the new Central Banks Acts (R.A. No. 7653)
provides the phase out of the BSP regulatory
powers over non-bank financial institutions
without quasi-banking function within a period
of 5 years from 1993.
 Component Institutions
1. Investment Houses, Investment houses are stock corporations engaged in
the underwriting of securities of other corporations on a guaranteed basis.
Their principal role is capital formation that can engage in portfolio
management, stock brokerage, financial consultancy and lending
operations.
2. Financing Companies. These are corporations or general partnerships
extending credit facilities to consumers and to industrial, commercial or
agricultural enterprises and leasing movable properties.
3. Investment Companies. These are issuers of securities primarily engaged
in the business of investing or trading in securities. There are two types of
investment companies: (1) the open-end company, also known as the mutual
fund, which offers for sale or has outstanding redeemable securities of
which it is the issuer; and (2) the close company, which is an investment
company whose shares issued are not redeemable.
 Component Institutions
4. Securities Dealers and Brokers A securities dealer buys and sells shares
of stock of another, or acquire securities for profit. In contrast, a securities
broker facilitates transactions between a buyer and seller of securities for a
commission.
5. Venture Capital Corporations These are organized jointly by private
banks, the National Development Corporation and the Technology Livelihood
Research Center and/or other government agencies to develop, promote and
assist small and medium scales enterprises through debt to equity
financing.
6. Pawnshops. There are businesses engaged in lending money on personal
property delivered as security or pledge. These may be organized as sole
proprietorship by Filipinos, or a partnership with 70% of the capital
subscribed by Filipinos or as a corporation with 70% of the equity owned by
Filipinos.
 Component Institutions
7. Lending Investors. Lending investors are those who make a practice of lending money for
themselves or others. They extend all types of loans, generally short term, often without
collateral, using their own capital.
8. Government Non-Bank Institutions There are investments or financing companies created
under special charters. These consist of the National Development Corporation, Philippine
Veterans Investment Development Philippine Export and Foreign Loan Guarantee Corporation,
National Home Mortgage Finance Corporation, and Small Business Guarantee and Finance
Corporation.
9. Mutual Building and Loan Associations. These are corporations whose capital stock must be
subscribed by the stockholders in regular equal installments with the purpose of accumulating
the stockholders' savings and repaying them with their accumulated savings and profits upon
surrender of their shares in order to encourage industry, savings and home building among its
stockholders.
10. Stock Savings and Loan Associations (SSLAs). There are associations operating under the
Savings and Loan Association Act and are licensed and supervised by the BSP. Their membership
is confined to a well-defined group of persons.
Investment and
Finance Companies
The investment houses of course, played a
significant part of this development. Investment
Companies or entities primarily engaged in
investing, reinvesting, or trading the securities,
also grew with these financial developments.In
addition, since they exist largely to extend credit
to consumers and the other enterprises.

Finance companies were stimulated by the

growing requirements for credit of consumers and
the other enterprises, including those in
agriculture, which were without normal access to
bank credit.
Influence of Interest
Rate Ceiling on
Money Market
The existence of ceiling of lending , due to
anti usury law, hampered the growth of the
deposit taking base of banks. The non- bank
institutions were not covered by this usury
law. Therefore, these institutions provided an
opportunity to fill in the gaps in financing
needs required by the economy.
Financial Dualism
Financial dualism refers to a situation where there are
two distinct and separate parts within a country's
financial system, and they work quite differently.

l Formal Financial System: This is like the "official" part

of the financial system, involving banks, government-
regulated institutions, and established rules. Here,
people deposit money in savings accounts, get loans, and
conduct transactions following well-defined regulations.

l Informal Financial System: This is the "unofficial" part

of the financial system. It's less regulated and can
include activities like lending money among individuals,
local savings groups, or non-traditional lenders. It
operates with fewer rules and can be more flexible.
 Europe’s Bank Scare
In 2008, there was a big problem with banks in Europe. Many of them
were in trouble and at risk of failing. This made a lot of people worried
about their money in the banks. To stop the banks from failing,
governments in countries like Germany, Iceland, and the UK had to give
them a lot of money or take control of them. Some people got so scared
that they took all their money out of the banks. This made the situation
even worse because it showed that people didn't trust the banks anymore.
Banks also stopped lending money to each other because they were afraid
they wouldn't get their money back. This caused problems in the financial
system.
 Europe’s Bank Scare
Unlike the United States, where they had a plan to deal with the crisis,
Europe didn't have a single authority to make rules for all European
banks. So, it was hard to come up with a plan to fix the problem. Some
experts said they need better rules for all European banks to prevent this
from happening again. But it's still not clear what rules will be made in
the future. Overall, the Europe's Bank Scare in 2008 was a big financial
crisis that affected many banks, made people worried, and showed the
need for better rules and coordination in the European banking system.
 Supervision and Examination Sector (SES)

SUPERVISION AND 01.

This sector has supervision and con- ducts
periodic and special examinations of
banking institutions and quasi-banks,

REGULATION OF
including their subsidiaries and affiliates
engaged in allied undertakings.

FINANCIAL Banking Service Sector (BSS) This sector is

INSTITUTIONS 02.
responsible for tracking/ monitoring foreign
exchange transaction and external debt,
currency issue and retirement, loans and
credit, government securities and branch
operations of the BSP.

Supervisory and Regulatory Authority

The powers and functions of BSP are exercised by the
Monetary Board and chaired by the Governor. It carries
out of its duties and responsibilities through its three Resource Management Sector (RMS) This

03.
major operating sectors, each headed by a Deputy sector is responsible over accounting
operations, information technology
Governor. systems, human resources, property
management, security and other support
services of the BSP.
 Actions the BSP may
take to protect depositors
and bank creditors in
cases where banks get
into financial difficulties
 A. Appointment of a
conservator in a bank
Whenever, on the basis of a report submitted by the appropriate
supervising or examining department, the Monetary Board finds that a
bank or a quasi-bank is in the state of continuing inability or
unwillingness to maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors.
B. Placement of a bank under receivership whenever,
upon report of the head of the supervising or
examining department. Monetary Board finds that a
bank or quasi-bank:
-is unable to pay its liabilities as they become due in the ordinary course
of a business: Provided, that this shall not include inability to pay caused
by extraordinary demands induced by financial panic in the banking
community.
-has insufficient realizable assets, as determined by the BSP, to meet its
liabilities; or,
-cannot continue in business without involving probable loses to its
depositors or,
-has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transaction which amount to fraud or
dissipation of the asset of the institution.
 C. Placement under liquidation
upon determination of a receiver
that the institution cannot be rehabilitated or permitted
to resume business with the depositors, creditors and
general public.
Thank you
very much!