Chapter 1 - Philippine Financial System

Banking and Financial
Institutions
Chapter 1 – The Philippine Financial
System
System
• What is Financial System?
• A complex structure and operation
• financial system is widespread . its various institution touch the lives of people all
over the world
• The financial system does not only include banks, credit union, pawnshop or
usurers, lending investors.
• World bank, international monetary fund, and the Asian development bank are part
of the Philippine financial system of our banking laws and monetary policies
System
• Financial System is a network of various institution which generates,
circulates and controls money and credit.
• It provides intermediation between the suppliers and users of credit,
• It provides loan to poor families, small producers, big businessmen and industrialist.
• It stimulates the social and economic development of the country.
System
• Elements of Financial System.
1. Financial Claims – these comprise the money and the right to receive
money under specific circumstances.
• Two categories of claims
• Debts and equities
2. Financial Institution – these are private or government organization

whose asset consist primarily of claims or incomes primarily derived
from dealing in and or performing services in connection with claims.
System
3. Financial Markets – these are institutions which expedite transaction in
Financial claims
• Example of financial claims are Philippines Stock Exchange and other
organization dealing with money market operations.
• Financial Market serves as a means of bringing the forces of demand and
supply of financial claims
System
4. Government Agencies – the monetary board is the policy making body of
Bangko Sentral ng Pilipinas.
• The role of the government agencies has a tremendous impact on the
Financial system
• The very important goal of Bangko Sentral is to attain internal and
external stability of peso.
System
5. Laws and Policies – the national government regulates and supervises the
behavior of the whole economy.
• Laws and policies have been formulated to ensure the desired levels of
investment, employment, production, income and consumption.
System
• Function of Financial Institution
1. Investigation and credit analysis
2. Matching the supply and demand for funds
3. Provision for liquidity
System
Development of Philippine Financial System
• Obras Pias – the first credit institution established in the Philippines
• It means pious works
• Started by father Juan Fernandez de Leon in 1754
• Most of obras pias funds were lent out to the traders to finance Galleon Trade
• Become commercial bank or marine insurance companies when firiars take
under control.
• The last out of obras pias came to end in 1820.
System
• In 1830, Francisco Rodriguez organized the Rodriquez Bank.
• This was more of a loan associated than a bank
• Most clients were American and British merchants
• When the owner died, the bank fund were turned over to the Queen of England
•In 1851, the first Philippine bank was established. This was the Banco Español-
Filipino de Isabella II.
•In 1869, the Philippine Trade Expanded thru the opening of Suez Canal
System
• In 1873, Chartered Bank of India, Australia and China set up a Manila
Branch
• 1875, Hong Kong and Shanghai Bank put up it branch in Manila
• 1883, Hong Kong and Shanghai Bank open branches in Iloilo to finance
the sugar industry.
• 1882, Monte de Piedad was established, it was the first savings bank in
1882.
• 1883, Banco Peninsula de Ultramirano set up branch in Manila
System
• Financial institution during American rule:
• 1898 when United states acquire the Philippines through Treaty of Paris
• Payne-Aldrich Act of 1902 – free trade between United States and Philippines
• 1902, International Banking Corporation of New York set up office in the
Country
• In 1915, the bank was acquired by the National City Bank of New York
• At Present, this bank is one of the top five banks in the Unites States, it is now called the
First National City Bank.
System
• 1904, Postal Savings Banks was organized
• 1906, First Agricultural Bank of the Philippine Government
• In 1916, assets and liabilities of the bank were transferred to the newly-organized
Philippine National Bank (PNB)
• 1916, Philippine Trust Co. were organized by Catholic Church
• 1926, Peoples Bank and Trust Co. was established by the Manila-based Americans
businessman
System
• In 1920s, Chinese banks were formed in the Philippines
• In 1920, China Banking Corporation
• In 1926, Bank of China
•1942, PNB closed its doors because of the Japanese Imperial Forces
•After few months, PNB ordered to reopen for business and it was Japanese Military
advisers
•Southern Development Bank, Japanese Bank, put up branch in the country to perform the
role of central bank
System
• In 1946, Rehabilitation Finance Corporation was established to provide
credit facilities for the rehabilitation of agriculture, commerce and
industry and the reconstruction of war-damaged properties.
• Later on become the Development Bank of the Philippines
• 1948, creation of Central Bank of the Philippines, however started the operations in
1949.
System
The Structure of Philippine Financial System

System
The Banking Institution
• The Banking Institution in the Philippines can be categorized as private banking and
government banking.
• The private banking institutions are comprised of commercial banking such as universal
banks and ordinary commercial banks; thrift banks like savings and mortrage banks,
private development banks, and stock savings and loan association; and the rural banks.
• The govenment banking institutions, on the other hand, consist of Philippine National
Bank, Development Bank of the Philippines, Land Bank of the Philippines, and the
Philippine Amanah Bank
System
Private Banking Institution
1.
Commercial Banking Institutions.
•The Banks that fall under commercial banking institutions are the ordinary commercial banks or
non-expanded commercial banks. These banks continue to account for the bulk of the total
resources of banking industry.
2.
The Thrift Banks.
•Thrift banks are primarily engaged in mobilizing the small savings of the people. They provide
funds for agriculture and industry at reasonable interest rates. The small producers like farmers,
fishermen, craftsmen, and poor consumers can rely on such banks for financing their production
and consumptions inputs. The following banks fall under the category of Thrift Banks
System
•The Savings and Mortgages Banks.
•The primary function of a savings and mortgage bank is to receive time
deposit of different types and to invest its funds in long term investment.
•The Savings and Loan Association.
•Very similar to the savings and mortgage banks are the savings and loans
associations nowadays. However, these institutions may either be stock or
non-stock corporations.
System
• The Private Development Banks.
• This is quite different from the government institution of the same name.
It is a government entity, formely the Rehabilitation Finance
Corporations.
• The Rural Banks.
• Rural Banks fulfill the investment function by allowing small farmers to
finance their needs through the granting of loans for capital or other
uses.
System
Government Banking Institutions
1. The Philippine National Bank.
• The Philippine National Bank (PNB) operates under the provision of Executive
Order No. 80, the 1996 revised charter of PNB.
2. The Development Bank of the Philippines.
• The Development Bank of the Philippines (DBP) started operating in 1935 as the
National Loan and Investment Board. Its first mission was to coordinate and
manage trust funds.
System
3. The Land Bank of the Philipines.
• The Agrarian Reforms Code created the Land Bank of the Philippines (LBP) to finance
the acquisition and distribution of agricultural estates for division and resell these small
landholders.
4. The Al-Amanah Islamic Investment Bank of the Philippines.
• The Al-Amanah Islamic Investment Bank of the Philippines (Islamic Bank) was created
under Republic Act No. 6848 for the purpose of
promoting and accelerating the socio-economic growth of Mindanao,
particularly the provinces of Cotabato, Lanao del Sur, Lanano del Norte,
Zamboanga del Sur, Zamboanga del Norte, and Sulu.
System
Non-Bank Financial Institution
•These are other financial institutions which engage in specific functions.
They provide services related to claims, financial information, and advice,
manage portfolios of financial assets on behalf of other economic units, buy
and sell claims on institution from clients, and assist in finding sources for
those economic units seeking loans. These either private or government
non-bank financial institution.
System
•Private Non-Bank Institutions
•1. Investment House/Banks.
• The term “investment house” is defined to mean as “any
enterprise which engages in the underwriting of securities of other
corporations. Underwriting is the act or process of guaranteeing the
distribution and sale of securities of any kind issued by another
corporation. Securities are written evidences of ownership, interest or
participation in any enterprise or written evidences of indebtedness of a
person or enterprise.
System
2. Securities Brokers/dealers.
• Pursuant to the provision of the Revised Securities Act, no broker, dealer,
or salesman must engage in business in the Philippines as such broker, dealer, or
salesman or sell any securities, including securities exempted under the said law.
3. Building and Loan Association
• A special type of savings institution. Because of its very nature, however, it
falls under this category in view of the fact that is also receives saving from
members and lends funds to them
System
4. Credit Union
• A credit union is another type of savings institutions. It also has for its
purpose the inculcation of the habit of thrift, frugality and the idea of
helping each other.
5. Private Insurance
• Private insurance companies contribute to the country’s socio-economic
developments as well as to the insured.
System
6. The Pawnshop.
• Pawnshop provides credit to small borrowers who are not qualified
to
obtain small loans from financial institution. In pawnshop, the cost of
borrowing and terms of payment are generally fair.
7. Trust Companies.
•A trust company is any corporation formed or organized for the
purpose of acting as trustee or administering any trust or holding property or
on deposit for the use.
System
8.Non-Stock Savings and Loans Association.
• A non-stock savings and loans associations is a corporation engaged in the business of accumulating
the savings of its member.
9.Financing Companies.
• Financing companies or partnerships, except those regulated by the Bangko Sentral, the Insurance
Commissioner, and the Cooperative Administration Office which are primarily organized for the purpose
of extending credit facilities to consumer and to industrial, commercial, or agricultural enterprises.
10.
Other Non-Bank Financial Institutions.
• These are financial institution that are unknown to many people. Fund managers, lending investor,
and venture capital corporations are among these institution.
System
Government Non-Financial Institution
1. The Government Service Insurance System.
•On May 13 May 1937, thew Government Service Insurance System (GSIS)
started its operation. Presently, the GSIS administers the following: Life Insurance Fund,
Retirement Fund, Health Insurance Fund/Medicine, State Insurance
Fund/Employees’ Compensation, General Insurance Fund/Property Insurance, and
Barangay Officials’ Life Insurance.
System
2. The Social Security System.
• On 1 September 1957, the Social Security System (SSS) started its
operation. At first SSS granted only death, disability, sickness, and old-age
benefits under its social security program for the workers/employees in the
private sectors. As its capacity the funding and administrative experience
grew, other benefits have added to the program such as hospitalization
benefits under the Medicare program, employees compensation benefits
and maternity benefits
System
• Transnational Banks in the Philippines
• International financial institution which operate in may countries all over the world
• Specialized in international finance, and their clients are primary the multinational corporations,
governments, big companies and wealthy individuals in the developing countries.
• Owned by United States, Japan, France and Great Britain.
•Top 3 US banks operate in the Country
•Citibank
•Bank of America
•Chase Manhattan
System
• WB-IMF and ADB Roles in the Philippine Financial system
• In 1945, World Bank and Asian Development were created.

• The main objective of World bank was to help reconstruct Western Europe
which had been destroyed by World War II, the later on it shifted its goal
to funding development projects of the third world country like
Philippines
System
• IMF goal has been to ensure an international monetary system that will
promote international free trade
• ADB started its operation on 1966, the main role of the bank is to help
promote the economic and social growth of its developing member
countries
System
Specific examples of WB-IMF policies for the debtor country like
Philippines
1. Adoption of floating rate system
2. Devaluation of peso
3. Import liberalization
4. Export promotion
5. Encouraging foreign investment
System
6. Raising indirect taxes like specific tax on oil products
7. Comprehensive interest rate reform
8. Removal of price controls over essential goods for domestic use
9. Limiting growth of money supply and domestic credit
10. Reducing or eliminating consumption subsidies like rice subsidy
11. Clean election
12. Limiting budget deficit of the national government

Chapter 1 - Philippine Financial System

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Chapter 1 - Philippine Financial System

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Banking and Financial

2. Financial Institution – these are private or government organization

The Structure of Philippine Financial System

• In 1945, World Bank and Asian Development were created.

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