AN OVERVIEW OF THE

PHILIPPINE FINANCIAL
SYSTEM
CHAPTER 1
Elements of the Financial
System
1.Financial Claims – These comprise the
money and the rights to receive money under
specific circumstances.
2. 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.
Elements of the Financial
System
3. Financial Markets – These are institutions which expedite
transactions in financial claims. It is a place where financial assets are
created or transferred.
-Money Market – Handles short term financial assets. Allows businesses
to gain access to funds on a short term basis.
-Capital Market – Handles long term financial assets. Allows business to
gain long term funding to aid expansion.
4. Government agencies – The monetary Board is the policy –
making body of the Bangko Sentral ng Pilipinas.
5. Laws and Policies – The national government regulates and
supervises the behavior of the whole economy, Its control of the
financial system is a vital condition for the whole economic behavior,
Specific Functions of
Financial Institutions
General Function: To facilitate the transfer of
funds from savers to the users.
1. Investigation and credit analysis – an
individual who lends his money through a
financial institution is assured of minimum risk
2. Matching the supply and demand for
funds – Financial institutions perform a
brokerage function.
Specific Functions of
Financial Institutions
3. Provision for liquidity – Not a few
savers are reluctant to lend their money
to borrowers. They feel that they may
need cash prior to due date of payment.
Or, in case they purchase bonds, they
may not be able to find buyers when they
decide to liquidate their bondholdings.
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL
SYSTEM
- Obras Pias – The first credit institutions established in the
Philippines. It was started by Father Juan Fernandez de
Leon in 1754.
Most of the obras pias funds were lent out to traders to
finance the Galleon Trade. The last of the obras pias came to
an end in 1820.
- 1830 – Rodriguez bank was created by a wealthy land
owner named Francisco Rodriguez. This bank catered
primarily to American and British Merchants. When the owner
died, the bank’s funds were turned over to the Queen of
England.
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
-1851 – The Banco Espanol-Filipino de Isabela
II(BPI) was established. It was the first Philippine bank
established. The bank handled mostly domestic
transactions.
--1869 - Opening of Suez Canal. Philippine Trade
expanded. The Banco Espanol-Filipino funded crops for
exports and established correspondent relations in
Spain and France to help the European Trade.
-1873 – Chartered Bank of India, Australia and China
set up a Manila Branch.
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
-1875 – Hong Kong and Shanghai Bank also put up
its branch in Manila.
-1883 – Both banks opened branches in Iloilo to
finance the sugar industry
In case of Spain… it was able to put up the first
savings bank in 1882. This is Monte de Piedad. Its
funds came from the obras pias.
- 1883 – another Spanish bank was set up in
Manila. This is Banco Peninsula de Ultramirano.
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
Financial Institutions during the American
Rule.
-1898 – Philippines was acquired by the United
States through the Treaty of Paris. Its business
interests were not as strong as those of the British
and Chinese. However, with the “free trade”
between the US and the Philippines as provided by
the Payne – Aldrich Act of 1902. American economic
control in the Philippines substantially increased.
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
-1902 - the American – owned International Banking Corp. of
New York (IBC) put up an office here. (Later in 1915, IBC was
acquired by the National City Bank of New York, forerunner of
First National City Bank (FNCB), which today is among the top
five banks in the US and throughout the World.)
-1904 - the Postal Savings bank(PSB) were set up.
-1906 – the First Agricultural Bank of the Philippine
Government.
-1916 – the assets and liabilities of the PSB were transferred
to PNB (Philippine National Bank)
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
-1916 - Philippine Trust Co. was set up by Catholic Church.
-1920s - two Chinese banks were set up. These were the
China Banking Corp. (1920) and the Mercantile Bank of
China (1926).
-1926 – People’s Bank and Trust Co. were established by
Manila Based American businessmen.
-1942 - PNB closed its doors. And was reopened and was
supervised by Japanese military advisers during the war
years. Southern Development Bank was established (a
Japanese Bank) to perform the role of a central bank.
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
POSTWAR FINANCIAL INSTITUTIONS
-1946 – Rehabilitation Finance Corporation
was established to provide credit facilities
for the rehabilitation of agriculture,
commerce, and industry, and the
reconstructions of war-damaged properties.
Some years later, it became the
Development Bank of the Philippines.
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
-1947 – Bank of America(BA) set up its Manila
branch, its second overseas branch. With the coming
of BA, the number of branches of foreign banks
increased to four. (Bank of America, Chartered Bank,
Citibank and Hong Kong and Shanghai Bank).
◦ Upon the recommendation of a joint RP – US
Finance Mission in 1947, the Central Bank was
created by law (RA 265) but did not start
operations until January, 1949.
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
-1951 – Rural Banks were authorized to operate
to cater primarily to the agricultural sector.
-1952 - The Agricultural Credit and Cooperative
Financing Administration, a government agency,
was created by RA 821.
-1955 - The first finance company was
established in Manila. Between 1955 and 1962
over 260 finance companies were set up.
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
-1958 - The Development Bank of the Philippines (DBP)
was established, taking over the RFC. Private
development banks were also allowed to operate.
-1960 – 1970 - Private Banks and non – bank financial
institutions mushroomed. Nineteen banks were set up
between 1960 and 1964.
-1969 - Finance Companies were placed under
jurisdiction of the Securities and Exchange Commission
with the enactment of the Finance Company Act (RA
5980).
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
-1971 - RA 6426 was enacted on April 4, allowing eligible
banks to set up foreign currency deposit units (FCDUs) to
accept dollar deposits and make dollar loans. (Previously
only the CB could do so).
-1972 - Several PDs were signed into law which allowed
foreign participation in other financial institutions: PD 113
(savings bank); PD 114 (pawnshops); PD 129 (investment
houses). PD 129 – otherwise known as the Investment
Houses Law – was promulgated to govern the
establishment, operations and regulation of Investment
houses.
 DEVELOPMENT OF THE
PHILIPPINE FINANCIAL SYSTEM
-1976 - Offshore banking units (OBUs)
were allowed to operate in the Philippines
with the promulgation of PD 1034. PD
1034 also expanded the functions of
foreign currency deposits units (FCDUs)
 STRUCTURE OF THE
PHILIPPINE FINANCIAL
SYSTEM
Bangko Sentral ng Pilipinas
*****Banking Institutions
-Private banking institutions
◦ Commercial Banks
◦ Thrift Banks
◦ Rural Banks
-Government banking institutions
◦ Philippine National Bank
◦ Development Bank of the Philippines
◦ Land Bank of the Philippines
◦ Philippine Amanah Bank
 STRUCTURE OF THE
PHILIPPINE FINANCIAL
SYSTEM
*****Non-Bank Financial Institutions
Private non-bank financial institutions
Investment Houses
Investment Companies
Financing Companies
Securities Dealers
Non-stock savings and loan associations
Pawnshops
Lending Investors
Fund Managers
 STRUCTURE OF THE
PHILIPPINE FINANCIAL
SYSTEM
Government non-bank financial
institutions
◦ Government Service Insurance System
◦ Social Security System
 TRANSNATIONAL BANKS IN THE
PHILIPPINES
These are international financial institutions which
operate in many countries all over the world. They
specialize in international finance, and their clients
are primarily the multinational corporations,
governments, big companies and wealthy
individuals in the developing countries.
These are owned by the industrialized countries
like the United States, Japan, France and Great
Britain.
 WB-IMF and ADB
(World Bank , International Monetary Fund,
Asian Development Bank)
These are owned by the governments of the rich countries.
The United States is the biggest shareholder of all the three
international financial institutions.
- The President of World Bank is an American.
- The Managing Director of the International Monetary Fund
is a European.
- The President of the Asian Development Bank is a
Japanese.
The US has a strong influence in all the aforementioned
institutions.
 WB-IMF and ADB
(World Bank , International Monetary Fund,
Asian Development Bank)
- The WB and IMF were created in 1945. They occupy
the same headquarters at Washington DC. The main
objective of the WB was to help reconstruct Western
Europe which had been destroyed by Work War II.
Later on, it shifted its goal to funding development
projects of the Third World like the Philippines.
- The main objective of IMF is to ensure an
international monetary system that will promote
international free trade.
 WB-IMF and ADB
(World Bank , International Monetary Fund,
Asian Development Bank)
- ADB started its operation in 1966. Its
headquarters is based in Manila. The
main role of the bank is to help promote
the economic and social growth of its
developing members countries by lending
funds and extending technical assistance.