Notes on Philippine Financial System

Introduction to Philippine Financial System

• The Philippine financial system comprises various institutions that manage the economy's monetary resources.

Objectives

• Understand the history of Philippine Banking.

• Identify the functions of the Bangko Sentral ng Pilipinas (Central Bank) and the Monetary Board.

History of Philippine Banking

• Obra Pias (Pious Works):

  • Banking initiated in the 16th century.

  • Comprised associations of laymen connected to religious organizations, providing 50% of the bank's capital.

• Rodriguez Bank:

  • Among the pioneers in the early 19th century; more of a loan association.

• Banco Espanol­Filipino de Isabel II:

  • Established on August 1, 1851 as the first state bank in Manila.

  • Renamed to Bank of the Philippine Islands on January 1, 1912.

• Postal Savings Bank:

  • Established in 1906, recognized as the first agricultural bank.

  • Transferred assets to the Philippine National Bank in 1916.

• Following the end of American rule, the Central Bank of the Philippines was created to establish a managed monetary system.

  • Given authority to issue paper money and regulate the banking system.

• British-Oriented Banks:

  • Opened branches in the Philippines in 1873 due to increased trade post-Suez Canal opening in 1869.

• Chartered Bank of India, Australia and China established branches in Manila and later in Iloilo and Cebu in 1872.

• Hong Kong and Shanghai Banking Corporation:

  • Opened its Manila branch in 1875.

• Monte de Piedad y Caja de Ahorros:

  • First mutual savings institution in the Philippines, opened in 1892, initially funded by Obra Pias.

Banking Functions and Services

• Banking Services:

  • Safekeeping of funds, handling money (collecting, transferring, paying), lending, investing, and custodianship.

• Types of Banking Institutions:

  • Commercial Banks: Handle demand and savings deposits, provide loans, and offer various financial services. (CAN engage in international banking operations).

  • Thrift Banks: Accept deposits, provide loans, and invest in marketable securities.(CANNOT engage in international banking operations).

  • Rural Banks (Regional Banks): Serve rural populations, primarily providing short-term loans and savings services.

  • Specialized Government Banks: Created by the government for the specific purposes special chapters.

    • Development Bank of the Philippines: Established in 1946 as the Rehabilitation Corporation. Focused on post-WWII rehabilitation and agricultural development.

    • Land Bank of the Philippines: Organized in 1963 to provide timely adequate financial support. Supports agrarian reform and farmers through loans.

    • Philippine Amanah Bank: Established in 1974 to promote and accelerate the socio-economic development of Mindanao. Provides banking services in Mindanao based on Islamic principles (Muslim).

Banking Account Types

• Demand Deposits (Current Accounts or Checking Accounts):

  • Current accounts allowing check transactions; funds are immediately available.

  • This deposit can be an automatic transfer account which requires a depositor to maintain a regular savings account aside from current account.

• Time Deposits:

  • Accounts that mature after a specific period; higher interest rates.

  • Certificates of Deposit (CDs) confirm deposit and can be traded in secondary markets.

• Savings Accounts (Person’s Callable Account):

  • No maturity date, lower interest compared to time deposits; flexible access.

Responsibilities of Banks

• Banks are entrusted with safeguarding customers' funds and must act with the highest levels of good faith and trust.

• There is a commitment to prudent use and protection of assets.

Summary

• The Philippine banking sector has evolved over centuries, starting from religious associations to various types of banks serving diverse functions today.

• Understanding different banking institutions and their roles helps grasp the overall financial landscape in the Philippines.