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FIN 004 Module 1

The document provides an overview of the Philippine financial system and its institutions. It discusses that a bank accepts deposits and lends funds to connect those with deficits to those with surpluses. The Philippine system includes universal, commercial, thrift, and rural/cooperative banks. It also outlines the key elements of a financial system like financial claims, institutions, markets, and government agencies, as well as the functions of analyzing credit and matching borrowers and lenders. The development of the Philippine financial system is traced from the Spanish period to present day.

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lianna marie
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82 views

FIN 004 Module 1

The document provides an overview of the Philippine financial system and its institutions. It discusses that a bank accepts deposits and lends funds to connect those with deficits to those with surpluses. The Philippine system includes universal, commercial, thrift, and rural/cooperative banks. It also outlines the key elements of a financial system like financial claims, institutions, markets, and government agencies, as well as the functions of analyzing credit and matching borrowers and lenders. The development of the Philippine financial system is traced from the Spanish period to present day.

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lianna marie
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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AN OVERVIEW OF THE FINANCIAL MARKETS AND INSTITUTIONS

WHAT IS A BANK?

A bank is a financial institution and a financial intermediary that accepts deposits and channels those
deposits into lending activities. It is the connection between customers that have capital deficits and
customers with capital surpluses.

THE PHILIPPINE BANKING SYSTEM

It is composed of universal and commercial banks, thrift banks, rural and cooperative banks.

 Universal and commercial banks represent the largest single group, resource-wise, of financial
institutions in the country. They offer the widest variety of banking services among financial
institutions. In addition to the function of an ordinary commercial bank, universal banks are
also authorized to engage in underwriting and other functions of investment houses, and to
invest in equities of non-allied undertakings.
 The thrift banking system is composed of savings and mortgage banks, private development
banks, stock savings and loan associations and microfinance thrift banks. Thrift banks are
engaged in accumulating savings of depositors and investing them. They also provide short-
term working capital and medium- and long-term financing to businesses engaged in
agriculture, services, industry and housing, and diversified financial and allied services, and to
their chosen markets and constituencies, especially small- and medium- enterprises and
individuals.
 Rural and cooperative banks are the more popular type of banks in the rural communities.
Their role is to promote and expand the rural economy in an orderly and effective manner by
providing the people in the rural communities with basic financial services. Rural and
cooperative banks help farmers through the stages of production, from buying seedlings to
marketing of their produce. Rural banks and cooperative banks are differentiated from each
other by ownership. While rural banks are privately owned and managed, cooperative banks
are organized/owned by cooperatives or federation of cooperatives.

WHAT IS FINANCE?

The study of how individuals, institutions, governments and businesses acquire, spend and manage
money and other financial assets.

WHAT IS A FINANCIAL SYSTEM?

It is a network of various institutions which generate, circulate and control money and credit.

NATURE AND NECESSITY FINANCIAL SYSTEM

 Extend loans.
 Funded programs of development towards industrialization and modernization.
 Facilitate the meeting of lenders and borrowers.
 Act as an intermediary between the lenders and borrowers of funds.
ELEMENTS OF THE FINANCIAL SYSTEM

 Financial Claims – the money and the rights to receive money under specific circumstances.
 Categories:
 Debts – financial obligations w/c are to be paid.
 Equities – claims of ownership like shares of stock.
 Financial Institutions – these are the private or government organizations whose assets
consists primarily of claims or incomes primarily derived from dealing in and/or performing
services in connection with claims.
 Financial Markets – is a market in which people and entities can trade financial securities,
commodities and other fungible items of low transaction costs and at prices that reflect supply
and demand.
 Ex. – Manila Stock Exchange, Makati Stock Exchange, PSE
 Government Agencies – supervises and regulates the banking institutions and other financial
institutions. Controls the money, credit and banking operations in the country.
 Laws and Policies – made to ensure monetary stability and economic growth.

FUNCTIONS OF FINANCIAL INSTITUTIONS

 Investigation and Credit Analysis – to ensure the efficient use of credit and to protect the
savings of individuals as well as to minimize the risk of nonpayment of loans.
 Matching the supply and demand for funds – act as money brokers. They bring the lenders
and borrowers together to make things convenient and economical for both parties. They
specialize in matching the supply of savings with the demand for funds.
 Provisions for liquidity – the possession of sufficient liquid assets to discharge current
liabilities.
 Provides payment system – the transfer of goods and services from one person to another
should be efficient.

DEVELOPMENT OF FINANCIAL SYSTEM IN THE PHILIPPINES

1. The Spanish period


a) Obras Pias (1854) – first organized financial institutions with religious functions.
Organized by Father Juan Fernandez de Leon.
b) Banco Espanol-Filipino de Isabel II (BPI) – first commercial bank in the Far East
(opening of Suez Canal in 1869)
c) Chartered Bank of India, Australia and China (1873)
d) Hong Kong and Shanghai Banking Corporation (1875)
e) Monte de Piedad y Caja de Ahorros de Manila (Aug. 2, 1882) – founded by Father Felix
Huertas; first savings bank.
f) Banco Peninsula Ultramino of Madrid (1886)
Thus, at the end of the Spanish regime in 1898, four banks – three commercial and one
savings bank.

2. The American period


a) S. Misaka Bank (1906)
b) New Berry and Reyes Bank (1902)
c) Wai Hung Bank and the Abrue (1902)
d) American Bank (1901)
e) Guaranty Trust Company
f) International Banking Corporation
g) Postal Savings Bank (1906) – a division of Bureau of Post. It is a Government-owned
Agricultural Bank w/a capital of P1 million.
h) Act No. 2612 in 1916 w/c called for the establishment of Philippine National Bank
(After World War I)
i) Yokohama Specie Bank (1918)
j) Asia Banking Corporation (1919)
k) Chinese-American Bank of Commerce of Peking (1920)
l) China Corporation (1920)
(After World War I)
m) People’s Bank and Trust Company (1926)
n) Mercantile Bank of China (1926)
o) National City Bank of New York (1930)
(After the establishment of Commonwealth in 1935)
p) Bank of Taiwan (1937)
q) Netherlands Indische Handles Bank (1937)
r) Philippine Bank of Commerce (1938) –first private commercial bank in the country
wholly owned by Filipinos, (absorbed by Philippine Commercial and Industrial Bank)
(Before the outbreak of World War II)
* 17 banks (11 domestic and 6 foreign banks)
* The first Philippine Commission passed Act No. 52 (1900) – examination and
inspection of banks by the Bureau of Treasury later on by Bureau of Banking (1929)

3. The Japanese occupation


 January 2, 1942 – entry of the Japanese Imperial Force in Manila. Operation of 17
banks were placed on a stand still but immediately called for resumption on Jan. 3,
1942.
 Banks owned by foreign nationals were treated as enemy property and placed under
liquidation by the ruling military government.
 3 Domestic Banks were allowed to resume operation.
 Philippine National Bank
 Bank of the Philippine Islands
 Philippine Bank of Commerce
 Southern Development Bank (Nampo Kaihatsu Kindo) in 1942 was established and
acted as a fiscal agent of the Japanese Government of the Philippines.

4. The Post war independence period


 After World War II, Philippine Government commenced rehabilitation work on the
banking system and created Executive Order No.49 on June 6, 1945.
 Rehabilitation Finance Corporation which was organized primarily to provide financial
aid in the rehabilitation of the country and the economy. RFC’s chartered was amended
and gave way to a much larger banking institution, the Development Bank of the
Philippines.

5. The New society period


 In 1948, the General Banking Act (R.A. No. 337) govern the rules, regulations and the
operation particularly of commercial and savings and mortgage banks.
 Central Bank of the Philippines created under R.A. No. 265 (Central bank Act) in 1948
to administer the monetary and the banking systems in the Philippines.
 The Banking Reforms of 1980 effected a revision in the Philippine Banking system.
Three categories of banks were retained but a new concept of banking called
EXPANDED COMMERCIAL BANKING or UNIVERSAL BANKING. (P1.5 Billion capital)
 June 14, 1993, President Ramos signed into law R.A. 7653 entitled “the New Central
Bank Act” pursuant to the requirements of the 1987 Constitution for the establishment of
an independent central Monetary Authority.

STRUCTURE OF PHILIPPINE FINANCIAL SYSTEMS

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