Philippine-Banking-System

Philippine Financial System

Overview

  • Presenter: Tess R. Dimayacyac, MMT

  • Learning Objectives:

    • Examine the structure and current state of the Philippine banking industry.

    • Review the history of financial reforms.

    • Discuss measures taken by authorities to strengthen the banking sector pre- and post-Asian crisis.

    • Identify remaining weaknesses and risk factors in the banking industry.

    • Explain the roles of:

      • Social Security System (SSS)

      • Government Service Insurance System (GSIS)

      • Home Development Mutual Fund (HDMF)

    • Identify private non-bank financial intermediaries.

Evolution of the Philippine Financial System

Key Political Milestones

  • Significant periods of development:

    1. Spanish period

    2. American period

    3. Japanese Occupation

    4. Post-war and Independence period

    5. New Society period

    6. Post-Marcos era

    7. Ramos-Estrada and Arroyo administrations

The Spanish Era

  • 1594: „Obra Pias” established, the first organized financial institution.

  • Funded mostly by legacies from wealthy Church individuals, supporting traders in Galleon trade.

  • 1882: First savings bank founded by Fr. Felix Huertas - "Monte de Piedad y Caja de Ahorros de Manila"

The American Period

  • 1901: Opening of the American Bank (operated for 4 years)

  • 1902: Establishment of Wai Hung Bank, Abrue Newberry, and Reyes Bank

  • 1904-1906: Opening of the first provincial bank - Bank of Pangasinan

  • 1916: Philippine National Bank established through Act No. 2612.

  • 1929: Bureau of Banking created to supervise banking institutions.

Japanese Occupation

  • January 2, 1942: Japanese forces entered Manila.

  • 1942: Southern Development Bank opened a Manila branch acting as a fiscal agent of Japanese Government.

Post-Marcos Era

  • 1986: Corazon Aquino presidency; addressed P130 B in bad loans from PNB and DBP.

Financial System Functions

  • Resource Allocation: Facilitates economic resource deployment across time and space in uncertainty.

  • Payment System: Provides mechanisms for exchanging goods and services.

  • Price Information: Aids decentralized decision-making in different economic sectors.

  • Data Management: Operates as an information system to handle financial events, planning, and reporting.

Currency and Central Banking

  • The Central Bank of the Philippines (CB) is the sole currency issuer.

  • Currency used: Peso (P).

  • Role of CB: Maintain currency integrity, meet demand efficiently, and provide services to banks and the public.

Stock Exchange

  • Philippine Stock Exchange: Founded in 1936.

  • Required approval of the Securities and Exchange Commission for prospectuses.

  • Public bond issues must also be SEC-approved.

Financial Institutions

  • Collects funds and invests in financial assets (deposits, loans, bonds).

  • Types:

    • Private and public organizations acting as a channel between savers and borrowers.

  • Key institutions in the Philippines:

    • Metropolitan Bank & Trust Co.

    • Banco de Oro Unibank, Inc.

    • Bank of the Philippine Islands

    • Other notable banks include the Land Bank, Development Bank, and many international banks.

Core Principles of Money and Banking

  1. Time has value

  2. Risk requires compensation

  3. Information is the basis for decisions

  4. Markets set prices and allocate resources

  5. Stability improves welfare

Types of Banks

Commercial Banks

  • One-stop commercial banks performing banking and non-banking activities.

  • Largest group of banking and financial intermediaries; predominantly branch-based in Metropolitan Manila.

Thrift Banks

  • Specialize in accepting savings and time deposits, issuing mortgages, and other activities.

Rural Banks

  • Focus on small loans for agriculture and retail; privately owned with support from the Central Bank.

Specialized Government Banks

Development Bank of the Philippines (DBP)

  • Provides long-term credit for agriculture and industry.

Land Bank of the Philippines (LBP)

  • Facilitates land reform and serves farmers.

Philippine Amanah Bank

  • Supports socio-economic development in Muslim Mindanao.

Non-Bank Financial Institutions

  • Includes:

    • Social Security System (SSS) - private sector worker protection.

    • Government Service Insurance System (GSIS) - public sector worker protection.

    • Home Development Mutual Fund (HDMF/Pag-IBIG) - housing programs.

Other Non-Bank Financial Entities

  • Investment houses, financial companies, securities dealers, thrift mutual associations.

  • Role of investment houses in underwriting and managing securities for clients.

  • Types of loans available through pawnshops and consumer finance institutions.

Philippine Deposit Insurance Corporation (PDIC)

  • Insures bank deposits; assesses insurance from member banks.

  • Maximum deposit insurance of P500,000 per depositor.

Securities and Exchange Commission (SEC)

  • Chief regulatory body in the securities industry.

  • Protects investors against fraud and deceptive practices.