Chapter 2

The Philippine Financial System

VINCENT C. CORTIAS
Faculty, College of Business Administration
Lyceum of the Philippines University
CAVITE CAMPUS

FINANCIAL SYSTEM
is an information system, comprised of one
or more applications, that is used for any of
the following: collecting; processing;
maintaining; transmitting; reporting data
about financial events; supporting financial
planning or budgeting activities; and
accumulating and reporting cost
information or supporting the preparation
of financial statements.

Elements of Financial System

Financial claims are the money and the
rights to receive money under specific
circumstances.
TWO CATEGORIES OF CLAIMS:
1.

Debts are financial obligations which are

to be paid.

2.

Equities are claims of ownership like

shares of stock.

 Financial

institutions these are

private or government organizations
whose assets consist primarily of
claims or incomes primarily derived
from dealing in and/or performing
services in connection with claims.

Financial

markets these are

institutions which expedite
transactions in financial claims.

 Governments

agencies
monetary policies are formulated
by the Monetary Board of the
Central Bank.

Laws

and policies the national

government regulates and
supervises the whole economy in
order to attain its development
objectives.

Functions of Financial
Institution
Its general function is to
facilitate the transfer of
funds from the savers to
the users.

Financial institutions performs

specific functions:

investigation and credit analysis

proper evaluation of loan applications

ensures the efficient use of credit.

protects the savings of individual

minimize the risk of nonpayment of

loans.

 Matching

the supply and demand for

funds.
-

financial institutions are money broker.

they bring the lenders and borrowers

together.

Provision

of liquidity

- Many savers are reluctant to transfer

their money to borrowers. They may
need cash before their debtors could
pay them.

 Provides

payments system.
The transfer of goods and
services from one person to
another should be efficient.
Central Bank is the
responsible for the
operation of the payments
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 countrys

paper money, regulate and supervise the countrys
banking system.

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.

BSPs Important Functions

The

Money Manager The BSP

manages the amount of money
available to the public to keep prices
from increasing more than usual.

The

Supplier of Money Only BSP can

legally issue money in paper notes
and coins and in amounts consistent
with the countrys economic program.

BSPs Important Functions

The

Bankers 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.

BSPs 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.

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

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.

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.

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

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.

Private Banking Institutions

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.

Private Banking Institution

3.

Rural Banks regional banks

operating primarily to serve the needs
of people in the provinces and suburban 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.

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.

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.

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

6.

Building and Loan

Associations

Investment Companies

7.

Pawnshops

3.

Financing Companies

8.

Trust Corporations

4.

Securities
Dealers/Brokers

9.

Insurance Companies

10.

Fund Managers

11.

Lending Investors

12.

Venture Capital
Corporations

1.

Investment Houses

2.

5.

Non-stock Savings and

Loan Associations

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.

The End