THE PHILIPPINE FINANCIAL SYSTEM

HISTORY OF THE PHILIPPINE BANKING

History of the Philippine Banking• Banking in the Philippines began in the 16th Century• This was the establishment of Obras Pias (Pious Works)

by laymen associated with the religious orders. • Funded from legacies and donations of wealthy

individuals• The Obras Pias was the source of credit and its funds

were invested in mortgage financing loans, trade with Acapulco and maritime insurance.

• Obras Pias profits were channeled to the construction of churches , government buildings and other charitable and religious projects.

History of the Philippine Banking • Among the first banks that emerged in 19th was the

Rodriguez Bank which was considered as more of a loan association than a regular bank.

• The need for more extensive banking services and facilities led the board of authorities (Junta de Autoridades) in Manila to establish on August 1, 1851 the first state bank in the Philippines.

• The Banco Espanol-Filipino de Isabel II was the first state bank and Obras Pias provided 50% of its bank capital.

• In 1873, British-Orient banks opened in the country as a result of the expanded Philippine –European trade that followed the opening of the Suez-Canal in 1869.

History of the Philippine Banking • The Chartered bank of India, Australia and China opened

in Manila in 1872. • The Hongkong and Shanghai Banking Corporation

established its Manila branch in 1875. • The first mutual savings in the country is Monte de Piedad

Y Caja de Ahorros - a unique combination of savings banks and pawnshops opened in 1882. Initial capitalization was also provided by Obras Pias.

• The bank was later renamed to Monte De Piedad and Savings Bank.

• The Banco Espanol-Filipino de Isabel II changed its name to Bank of the Philippine Islands on January 1, 1912.

History of the Philippine Banking• BPI established correspondent arrangements with a Paris

bank for servicing of client transactions with counterparts in Europe and other parts of the world.

• BPI is considered as the oldest bank in the country. • During the American Occupation , seven domestic private

banks came to existence. Branches of Japanese a well as Chinese banks were also opened during the early part of the period.

• The Postal Savings Bank was put up in 1906. • The first agricultural bank was established in 1908 but its

assets and liabilities were transferred to the Philippine National Bank which was organized in 1916.

History of the Philippine Banking • Three years after the American regime ended, the Central

Bank of the Philippines was created, establishing a managed monetary system in the Philippines.

• It was given the sole authority to issue the country’s paper money, regulate and supervise the country’s banking system.

BANKO SENTRAL NG PILIPINAS

Banko Sentral ng Pilipinas (BSP)• The BSP was created under Section 2 of RA 7653 better

known as “The New Central Bank Act”. • It traces the roots and fundamental structure from its

predecessor, the Central Bank of the Philippines. • The Bank began formal operations on July 3, 1993. • The BSP performs several important functions that have

significant effect on the value of the money.

BSP’s Important Functions • The Money Manager – The BSP manages the amount of

money available to the public to keep prices from increasing more than usual. It does this to preserve the value of money , earnings and savings are not eroded by abnormal increases of goods and services.

• The Supplier of Money – Only BSP can legally issue money in paper notes and coins and in amounts consistent with the country’s economic program. The money it issues is fully guaranteed by the Government and can be used to pay any goods and services in the country. The BSP also prints the paper money and mints the coins. At its vaults, a ready supply of money is available to replace old ones or add to those currently being used.

BSP’s Important Functions • The Banker’s Bank – The BSP grants loans to and accepts

deposit only from banks. It grants loans to banks for commercial , production and similar purposes as in exports and imports and agricultural activities. It lends cash to banks in times of national or local emergencies or its financial problems directly threatens the stability of the banks.

-BSP accepts deposits from banks as part of their required reserves.

-As part of its management of the money supply, the BSP requires banks to set aside and not lend a portion of their deposits. To comply with this requirement, Banks keeps a portion of their cash in their vaults and a specified portion deposited with BSP or invested in Government Securities bought directly from BSP.

BSP’s Important Functions • The Supervisor of all Banks – In exercise of its

responsibility to supervise banks, the BSP regularly monitors and examines the operations of banks as well as their compliance with banking rules and regulations. BSP can assign a conservator to temporarily manage the bank to prevent it from incurring more loses and affecting other banks.

• The Main Bank of the Government – The BSP is the official depository of the government. Some of the tax collections , proceeds of the sale of government securities and foreign loans are deposited to BSP. If government needs money it withdraws funds from BSP.

BSP Monetary Board • Is the policy-making body of the bank. • It is headed by the Governor who is concurrently the

Chairman of the Board with five full-time members from the private sector and one member from the cabinet.

• Implementing its policies and regulations as well as running the day-to-day operations are the officers and employees . A deputy Governor heads each of the Bank’s three major operating sectors. • Banking Services Sector • Supervision and Examination Sector • Resource Management Sector

Banko Sentral ng Pilipinas (BSP)• The BSP is responsible for maintaining Price Stability

conducive to a balanced and sustainable growth of the economy.

• The BSP keeps the prices of goods and services steady and at the reasonable levels so the economy can run unhampered.

• The BSP provides policy directions in the areas of money, credit and banking.

• To keep the prices at reasonable levels, BSP must protect at all times the value of Peso.

• BSP supervises the operations of banks to promote the soundness and safety of banking.

Banko Sentral ng Pilipinas (BSP)• In Republic Act 7653, the BSP also regulates the

operations of finance companies and non-bank financial institutions doing quasi-banking operations.

PRIVATE BANKING INSTITUTIONS

Private Banking Institutions • These companies perform the service of safekeeping

funds through the acceptance of money deposits and the provision of credit through lending of money.

• The banks assist in the mobilization of funds needed for various industries and other productive undertaking.

1. Commercial Banks – covers the widest range of functions among all financial intermediaries. Their services include receiving, collecting, transferring , paying, lending, investing, dealing, exchanging and handling money, safe deposit, custodianship , trusteeship and money claims domestically and internationally.

Private Banking Institutions

2. Thrift Banks – are savings and mortgage banks, stock savings and loan associations, and private development banks which in addition to accepting savings and time deposits, perform the following functions: grant loans, invest in readily marketable bonds and other debt securities. They differ from commercial banks in that they cannot engage in international banking operations. But they can accept checking accounts, government deposits and foreign currency deposits and perform trust functions upon approval from Central Bank.

Private Banking Institution

3. Rural Banks – regional banks operating primarily to serve the needs of people in the provinces and sub-urban areas. Rural banks perform the following functions: Granting of short term loans to farmers , merchants, cooperatives to finance their requirements in the pursuit of their business which are principally aimed at countryside development. They also accept savings and time deposits to accumulate funds for local development. They also serve as channels for disbursement and collections of supervised credit programs and they act as correspondents for other financial institutions.

Government Banks • Development Bank of the Philippines – was established in

1946 as the Rehabilitation Finance Corporation to attend to the requirements of rehabilitation and development after World War II. Today, it is tasked with the development and expansion of the agricultural industry and promoting the establishment of private development bank. Its lending activities are concentrated on development projects, such as agriculture, industry and low-cost housing.

Government Banks • Land Bank of the Philippines – was organized in 1963 to

provide timely and adequate financial support to the Agrarian Reform program. Its lending activities are geared primarily towards helping farmers acquire land under the agrarian reform program. The bank was also granted special powers under the General Banking Act as it can perform the functions of universal bank including trust functions.

Government Banks • Philippine Amanah Bank – was established in 1974 to

promote and accelerate the socio-economic development in Mindanao especially in the predominantly Muslim province and economically depressed areas of Cotabato , Lanao Del Sur, Lanao del Norte, Zamboanga del Sur and Norte and Sulu. However, it is also based on the Islamic concept of banking following the “no-interest and partnership” principles.

Private Non-Bank Financial Institutions

1. Investment Houses 2. Investment Companies3. Financing Companies 4. Securities Dealers/Brokers 5. Non-stock Savings and Loan Associations 6. Building and Loan Associations 7. Pawnshops8. Trust Corporations 9. Insurance Companies 10. Fund Managers 11. Lending Investors12. Venture Capital Corporations

Government Non-Bank Financial Institution

• Government Service Insurance System (GSIS)- was entrusted with the administration of a life insurance fund. It then extended life insurance coverage and benefits to government employees in the country. It provides social insurance and security benefits to members and has supported financially a wide range of economic development both government and private.

Government Non-Bank Financial Institution

• Social Security System – grants to its members those from the private sector benefits such as sickness, disability, death and old-age pension. Additional benefits have been incorporated into scheme, including hospitalization benefits , employees compensation benefits and maternity benefits.

THE END