MODULE 1: OVERVIEW OF THE PHILIPPINE FINANCIAL SYSTEM

NATURE AND IMPORTANCE OF FINANCIAL SYSTEM

FINANCIAL SYSTEM
• composed of the myriad markets and institutions through which funds flow between lenders and borrowers.
• composed of the legal and tax framework, savers, corporate investors, and financial institutions.
• network of various institutions that generate, circulate and control money and credit.
• some of these institutions, such as households, firms, or governments, spend more during a given period than they earn,
while other institutions spend less.
• Example: business firms usually spend more during a specific period than they earn.
households spend less on current consumption than they earn.
• intermediation between the suppliers and users of credit or a mechanism is needed to facilitate the transfer of savings for
those institutions with a surplus to those with a deficit.
• function of financial system which is to allocate or match the supply of savings in the economy to the demanders (users)
of those savings in a safe and efficient manner.

3 KEY SERVICES PROVIDED BY FINANCIAL SYSTEM

1. Risk Sharing
• Risk is generally referring to “general uncertainty, doubt, an insured object, or chance of loss”.
- Risk is defined as the chance that the value of financial assets will change relative to what you expect.
- Portfolio individuals prefer stable returns on the collection of assets they hold, which may consist of investment holding
such as T-bonds, some shares of stock and some shares in a mutual fund.
- Performances assets will vary in terms of their ability to generate income. Some may perform well and earn much, while
another set of assets belonging to the same portfolio may turn out to be no so good or bad performers.
- Diversification spreading of assets into many assets to make up a portfolio.
- Principle of efficient diversification holds that bundles of assets should be combined to mitigate market risks.
- The financial system provides risk sharing by allowing savers to hold diversified assets.
- Financial markets have the capacity to create instruments that can transfer risk from savers or borrowers who do not favor
uncertainty in their returns or payments to savers or investors who are willing to bear the risk.
- The ability of the financial system to share risk makes savers more willing to buy the borrower’s IOUs.
- This willingness, in turn, increases a borrower’s ability to raise funds within the financial system.

2. Liquidity.
- Liquidity in the financial system is manifested by the case with which an asset can be exchanged for money to purchase
other assets, goods, and services.
- It is a benefit for savers since they can exchange their assets easily when they need them for their own consumption or
investment.
In general, the more liquid an asset, the easier it is to exchange the asset for another asset or for goods and services.
- Financial assets created by the financial system, such as stocks, bonds, or checking accounts are more liquid than cars,
machinery, or real estate.
- Financial markets and intermediaries provide training systems for making financial assets more liquid.
- Efficiency of the financial system can be measured by the extent to which an investor can easily t ransform illiquid assets
into liquid claims.

3. Information
- Financial system provides market players more access to vital information about borrowers’ and lenders’ expectations,
and what they have to offer. Obtaining such information would be costly and time consuming for savers, who of course want
all the facts before lending their money.
- In general borrowers may have undisclosed intentions or activities that could be detrimental to the lenders’ interests.
- Asymmetric information pieces of information that are only available or known by the borrower that could spell our future
problems in most transactions. As a result, financial arrangements, in some cases, must be structured so that borrowers do
not take advantage of asymmetric information at the expense of the lenders. Because of asymmetric information funds
borrowed for the purpose of putting up a business that is supposed to be self-liquidating could easily be diverted to another
purpose. To address the problem of asymmetric information the financial system usually sets up a mechanism that
specializes in information gathering and monitoring.
BARRIERS TO MATCHING SAVERS AND BORROWERS
- Transaction Costs are the costs of buying or selling a financial instrument such as a stock or bond. These also include
the brokerage commission, minimum investment requirements, and lawyer’s fees. Transaction costs make investing in debt
and equity instruments in financial markets costly for small savers. Financial intermediaries take advantage of economies
of scale by pooling savers’ funds to lower transactions costs.

- Information Cost additional costs that will be incurred by the savers to determine the creditworthines s of borrowers and
to monitor how borrowers use the acquired funds. This reduces the efficiency of the financial market since borrowers must
pay higher costs of funds and reduce the expected returns to savers. This inefficiency creates profitable opportuni ties for
individuals and institutions that can reduce transactions and information cost.

1. Asymmetric information and information costs. Neither the investors nor the company’s manager can anticipate
market conditions or economic events that are relatively influenced by market forces.

- Asymmetric information occurs when one party in a transaction has better information than the other, or when the
borrower and the lender have different information about the transaction.
Managers for example may know that the future of their firm is very shaky, but lenders continue lending to the firm because
they do not have this information. The existence of asymmetric information makes it costly for the savers and borrowers to
make exchanges in financial markets.

There are two types of costs, arising from asymmetric information, namely:
a. Adverse selection – occurs when those firms most likely to default are themselves most actively seeking the loans. This
happens because the interest rate offered for such loans in the most attractive to the high-risk firms. It is the lenders’ problem
of telling the good risk applicants from the bad risk ones before making an investment.

Financial intermediaries reduce adverse selection through:

i. Screening. This happens before a loan is made. This is to identify the good and bad risk type. Financial intermediaries
used a lot of information that concerns the borrower’s previous credit history, employment status, etc.
ii. Monitoring. This happens after a loan is made. Bank monitors the borrower to make sure that funds are used as agreed
in the loan contract. Also, because credit information is collected by reporting agencies and is accessible to lenders, financial
intermediaries can punish (by increasing interest rate, or not lending at all) the borrowers next time if they entail moral
hazards on the banks current loan.

b. Moral Hazards – occurs when the lender is subject to the risk that the borrower will engage in risky activities that
jeopardize paymen while seeking high returns. Arises because of asymmetric information that is borrower’s knows more
than the lender does about how the borrowed funds will be used and the resulting problems increase the lenders cost.

ELEMENTS OF THE FINANCIAL SYSTEM

1. Financial claims These compromise the money and the right to receive money under specific circumstances. Usually,
these are evidenced by financial instruments which specify the terms of the claims. There are two broad categories of
claims : debts and equities. The latter conveys ownership rights while the former does not. The debtor has an obligation
to pay his loan plus interest. On the other hand, equities are investments like shares of stock which earn dividends.

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. Institutions which deal with
the creation and issuance of claims against themselves, and us the proceeds to acquire and hold claims against others, are
commonly referred to as Financial Intermediaries . Such institutions act as middlemen between suppliers and users of
money.

Other financial institutions are primarily involved in services related to claims. They provide financial information
and advice manage portfolios of financial assets on behalf of other economic units, buy and sell claims on instructions from
clients, and assist in finding sources for those economic units seeking loans.

3. Financial Markets
• market place where buyer and sellers participate in the trade.
• platform that facilitates traders to buy and sell financial instruments/securities.
• institutions which expedite transactions in financial claims.
• Example: Philippine Stock Exchange and other organization dealing with money market operations.
• serve as a means of bringing the forces of demand and supply of financial claims.

Importance
• helps in ecomic growth of country.
• helps savers to become investors.
• helps businesses to raise money to expand their business.
Functions
• Price Determination
• Mobilization of Funds
• Ensures Liquidity
• Saves time and money

Types/ Classification of Financial Markets

By Nature of Assets
• Stock market - where shares of the company are listed and traded after their IPO.
• Bond market - This market allows companies and the government to raise money for a project or investment. Investors
buy bonds from a company, which later returns the amount of bond with agreed interest.
• Commodities market - In this market, investors buy and sell natural resources or commodities, like corn, oil, meat, and
gold.
• Derivatives market - This market deals in derivatives or contracts, whose value is based on the underlying asset being
traded.

By Nature of Claim
• Debt Market - The market where fixed claims or debt instruments, such as debentures or bonds are bought and sold
between investors.
• Equity Market – is a market wherein the investors deal in equity instrument. It is the market for residual claims.

By Maturity of Claim
• Money Market - where monetary assets such as commercial paper, certificate of deposits, treasury bills, etc. which mature
within a year are traded. It is the market for short term funds. No such market exist physically the transactions are performed
over a virtual network i.e. fax, internet or phone.
• Capital Market – where medium and long term financial assets are traded in the capital market. It is divided in two types
Primary Market – wherein the company listed on an exchange for the first time issues new security or already listed
company brings the fresh issue.
Secondary Market – alternately known as the stock market. It is an organized marketplace wherein already issued
securities are traded between investors such as individuals, merchant bankers, stockbrokers and mutual funds.

Timing of Delivery
• Cash Market – where the transaction between buyers and sellers are settled in real time.
• Futures Market – is one where the delivery or settlement of commodities takes place at a future specified date.

Organizational Structure
• Exchange Traded Market – which has a centralized organization with the standardized procedure e.g. Philippine Stocks
Exchange.
• Over the Counter Market – is characterized by a decentralized organization having customized procedures.

3. Financial markets These are institutions which expedite transactions in financial claims. Examples are the Philippine
Stock Exchange and other organizations dealing with money market operations. A financial market serves as a means of
bringing the forces of demand and supply of financial claims.

4. Government agencies The monetary board is the policy making body of the Bangko Sentral ng Pilipinas. Laws on
money credit and banking are legislated by the Congress and through executive orders issued by the President of the
Philippines. The role of the government agencies has a tremendous impact on the financial system. For example one very
important goal of the Bangko Sentral is to attain internal and external stability of our peso.
5. Laws and policies The national government regulates and supervises the behavior of the whole economy. Hence its
control of the financial system is a vital condition for the whole economic behavior. Laws and policies have been formulated
to ensure the desired levels of investment employment production income and consumption.

FUNCTIONS OF FINANCIAL SYSTEM

The basic function of the financial system is to provide channels to transfer funds from savers with an excess of funds to
spenders facing a shortage of funds. The most important suppliers or savers of funds are the households , while firms, the
government and foreigners sometimes find themselves with excess funds and so lend them out.
Funds may flow from lenders to borrowers via three routes.

1. Direct finance One engages in a direct finance when he borrows money from a lender and at the same time gives him
or her his IOU. A direct finance also transpires when a person purchases stocks or bonds directly from a company issuing
them. This involves primary securities, which are claims that flow directly from the borrower to the ul timate lender of funds.
However, this form of financial transaction carries a set of limitations of which include a necessary concurrence of wants
between the borrower and the lender in terms of the amount and form of a loan and a substantial information cost between
lender and borrower in finding each other. These restrictions are overcome by efficient (i.e. deep and liquid) financial
markets. When efficient lenders and borrowers can just go to the market where they will always find a price and term for
any amount of borrowing or lending.

2. Semidirect finance Is another form of financial transaction. Here, individuals and business firms become securities
brokers and dealers whose primary function is to bring together the buyers and the sellers of securities hence reducing
information costs. Let us distinguish between a broker and a dealer in securities. A broker is merely an individual or a
financial institution whose only function is to match buyers and sellers of securities. Part of their function is to provide
information concerning possible purchases and sales of securities. A dealer on the contrary links buyers and sellers by
buying and selling securities at stated price. Semidirect finance may improve on direct finance if it lowers the search cost
for participants and dealers can divide securities into smaller units that are more affordable even by an average laborer
expanding the flow of savings and investment.

3. Indirect finance The third form of financial transaction is called indirect finance. In this system, monetary transactions
are made through financial intermediaries such as depository institution, contractual institution, investment institution and
other financial institution such as investment bankers, mortgage bankers, security dealers and security brokers. These
intermediaries certainly carry low risk of default as they themselves issue securities of their own to ultimate lender and at
the same time accept IOUs from borrowers.

DEVELOPMENT OF THE PHILIPPINE FINANCIAL SYSTEM

HISTORY OF BANKING IN THE PHILIPPINES

- Obras Pias 16th Century Spanish Colonial Era, first organized credit institution established in the Philippines.
• charitable foundation during the Spanish Period.
• means works of piety (Spanish)
• mean pious works
• started by Father Juan Fernandez de Leon in 1754
• funds came from pious Catholics together with those who made their wills before undertaking dangerous expedition.
• church directed a share of personal fortunes to its charities such as Obras Pias.
• donors specified that funds are to be used for charitable, religious, and educational purposes.
• but some of funds were manage by confraternities that invested capital in secular activitie s like underwriting cargoes for
the galleon trade.
• lent out to traders to finance Galleon Trade
• under the control of the friars.
• became commercial banks or marine insurance company.
• last came to an end in 1820

- 10 years later
• Francisco Rodriguez organized the Rodriguez Bank loan associated than a bank.
• most clients of the bank were American and British merchants
• bank's fund were turned over to the Queen of England (when owner died)
- 1869
• opening of Suez Canal facilitated trade between the Philippines and Europe.
• Philippines then attracted British Capital.
• Years followed, chartered bank of India, Australia and China (now known as Standard Chartered Bank) and Hongkong
and Shanghai Banking Corporation HSBC (British-owned banks open their branches in Manila.

- End of Spanish Regime

• El Banco Español Filipino de Isabel II (Bank of the Philippine Islands BPI) given the sole mandate under a Spanish Royal
Decree of 1854 to issue banknotes called Peso Fuertes;
✓ Chartered Bank of India
✓ Branch of the HSBC
✓ Monte de Piedad
✓ Banco Peninsula Ultramarino de Madrid
• Peso Fuertes first paper money circulated in the Philippines
✓ issued in 1852 by El Banco Español Filipino de Isabel II (first bank established in count ry)
✓ "strong peso" in English had denominations of 5,10,25,50,100

- American Colonial Period

• banks from the USA started to establish local branches that would cater to growing American economic interest and capital
inflow into the country.
• American Bank first to open a branch in 1901.
• but placed under receivership by the Insular Treasurer for making doubtful loans after only 4 years of operations.

- 1916
• Philippine National Bank established with the Philippine Government as the majority stockholders.
• to break the foreign banking monopoly and remedy the lack of credit facilities.
• function as a government enterprise that would widen the variety of banking services
• "beyond trade finance in exportation and importation, money changing of foreign currency and fund transfers, all of which,
while useful in the short term failed to mobilize capital in the development of natural resources".
• charter at that time empowered PNB to issue bank notes and acts as a depository of government funds.

- BPI and PNB Notes

• El Banco Español-Filipino De Isabel II, renamed Bank of the Philippine Islands (BPI)
• Philippine National Bank (PNB) authorized to issue bank notes during the American Era, from 1908 to 1933 for the former
and 1916 to 1937 for the latter.
• Republic Act No. 211 dated 1 June 1948 ordered the withdrawal of PNB notes from circulation.

- turn of 20th century

• Americans established Guaranty Trust Corporation (GTC) and International Banking Corporation (IBC)
• existence of GTC was short-lived
• IBC eventually taken over by the National City Bank of New York (known as Citibank)

- 1918
• Manila branch of the Yokohama Specie Bank was given licence to do business in the Philippines.

- 1935 to 1946
• more foreign bank branches were established in the Philippines
• include Bank of Taiwan and Nederlandsche Indische Handels Banks

- 1939
• government created the Agricultural and Industrial Bank to absorb the functions of the National Loan and Investment s
Board and to harness government resources.

- Philippine Bank of Communication

• first bank with genuine Filipino private capital
• temporarily closed at the outbreak of WWII
- During WWII
• only Filipino-owned and Japanese banks were allowed to operate.
• Chartered Bank of India, Australia and China, HSBC, and National City Bank of New York were all treated as enemy
properties and placed under liquidation by Japanese Militar Government.

- Nampo Kaihatsu Ginko (Southern Development Bank)

• opened a Manila Branch in 1942
• acted as the Japanese government's fiscal agent in the Philippines.

- After Liberation
• all domestic banks that operated during the Japanese occupation were unable to reopen because greater part of their
assets consisted of worthless Japanese war notes, bonds and obligations of the Japanese-sponsored republic and balances
with Japanese banks.

- 1947
• branch of Bank of America was allowed to establish a branch in Manila and in the following year, it absorbed the assets
and liabilities of the local branch of the Nederlandsche Indische Handels Banks.

- 1952
• Rural Bank Act was enacted and;
• 2 years later 1954 Agricultural and Industrial Bank merged with the Reconstruction and Rehabilitation Fund to form the
Development Bank of the Philippines.
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FIRST PHILIPPINE BANK

- 1851
• first Philippine Bank was established.
• Banco Español-Filipino de Isabella II
• granted a charter in 1528
• started transacting business when several Philippine ports were opened to foreigners
• foreign trade outside Manila was not very substantial handled mostly domestic transaction.

- Opening of Suez Canal in 1869

• Philippine Trade expanded
• European market became accessible to Philippine producers and this induced the country's agricultural development.
• Banco Español Filipino funded crops for exports and established correspondent relations in Spain and France to help the
European trade.
• growth of trade with European began to attract British capital of the Philippines.
• 1873 Chartered Bank of India, Australia and China set up a Manila branch
• 2 years later 1975 Hongkong and Shanghai Bank also put up its branch in Manila.
• 1883 both banks opened branches in Iloilo to finance the sugar industry.

- 1820s to 1900s
• British banks dominated the economy during Spanish colonial rule.
• British merchants controlled the economy, their ships connections with China and Europe, credit resources and technique
and machinery for large scale crop production gave them an advantage over other merchants.
• American business interests started to expand during this period.

- Monte de Piedad
• Spain put up the first savings bank in 1882 despite British domination in the banking industry.
• funds came from the obras pias
• 1 year later 1883 or 1853 another Spanish bank Banco Peninsula de Ultramarino set up a Branch in Manila.

- Financial Institutions during American Rule

• US acquired the Philippines in 1898 through the Treaty of Paris
• business interests were not strong as those of British and Chinese.
• Payne-Aldrich Act of 1902 "free trade" between US and the Philippines.
• American economic control in the Philippines substantially increased.
• weakening of British commercial activities in Asia because of its involvement in World War 1 ( 1914 to 1918 )
• gave the Americans the opportunity to promote their business interests in the Philippines.

- 1902
• International Banking Corporation of New York set up an office in the country.
• 1915 : bank was acquired by the National City Bank of New York
• Present : bank is one of the top 5 banks in the US and the whole world
• Now : First National City Bank
• Through the International Banking Corporation, Americans were able to generate more business interests in the Philippines.
• Other branches of American banks were established such as:
• Guaranty Trust
• American Bank

POSTWAR FINANCIAL INSTITUTIONS

- After World War II and During 1960s up to 1970s

• non-commercial banks emerged

- End of 1978
• there were 35 commercial banks, including four branches of foreign banks with nationwide network of 2,830 banking units.

- October 17, 2017

• 36 universal and commercial banks
• 57 savings banks
• 492 rural banks
• 40 credit unions
• 6,267 non-banks with quasi-banking functions.
* all license by BSP Central Bank of the Philippines under the General Banking Act of 2000

STRUCTURE OF THE PHILIPPINE FINANCIAL SYSTEM

- Financial system has a complex structure and operation involving every individual and business organization in a civilized
society. It comprises the financial institutions such as banks, pawnshops, credit unions, money markets , investment houses,
financing companies, securities dealers, and other non-bank financial institutions.
- Philippine financial system is a network of various institutions which generates, circulates, and controls money and
credit. Its policies and programs, therefore, support the country’s social and economic development.This presents the
Philippine banking institutions, both private and government as well as private and government non-bank financial
institutions. The Bangko Sentral ng Pilipinas is presented ahead of the banking and financial institutions since it is the
country’s central monetary authority.

BANGKO SENTRAL NG PILIPINAS

BANKING INSTITUTIONS

1. Private Banking Institutions

a. Commercial Banking Institutions
b. Thrift Banks
i. Savings and Mortgage Banks
ii. Savings and Loan Association
iii. Private Development Banks
c. Rural Banks

2. Government Banking Institutions

a. Land Bank of the Philippines
b. Development Bank of the Philippines
c. Al Amanah Islamic Investment Bank of the Philippines (Philippine Amanah Bank)

NON-BANK FINANCIAL INSTITUTIONS

1. Private Non-Bank Institutions

a. Investment House/Bank
b. Securities Brokers/ Dealers
c. Building and Loan associations
d. Credit unions
e. Private Insurance Company
f. Pawnshops
g. Trust Companies
h. non-stock savings and loans associations
i. Financing Companies
j. Other Non-Bank Financial Institutions.
i. fund manager
ii. lending investors
iii. venture capital corporations

2. Government Non-Bank Financial Institutions

a. Government Service Insurance System
b. Social Security System
c. Philippine Export and Foreign Loan Guarantee Corporation
d. National Home Mortgage Finance Corporation.

OVERVIEW OF THE PHILIPPINE FINANCIAL SYSTEM

BSP
Banking Institutions Other FIs
Universal Banks w/quasi banking functions
Commercial Banks FOREX Dealers, Money Changers
Thrift Bank Bank-affiliated NBFIs
Rural Banks Pawnshop
Cooperative Banks NSSLAs

SEC, IC, CDA

NBFIs w/o Quasi Banking Functions
Lending Companies
Investment Houses
Financing Companies
Capital Market Participants
Pre-need Companies
Insurance Companies
Cooperatives

NBFIs w/ QUASI BANKING FUNCTIONS

- NBQBS are non-bank financial institutions (NBFIs) authorized by BSP to borrow funds from 20 or more lenders for their
own account thru issuances, endorsement or assignments w/ recourse or re-lending or purchasing receivables and other
obligations.
- Only NBQBS and other financial institutions without quasi-banking functions but are either subsidiaries or affiliates of
banks are subject to BSP supervision.
- Regulation of non-banking functions such as trust companies and pawnshops also falls within the jurisdiction of the BSP.

MODULE 2: CENTRAL BANK OF THE PHILIPPINES (BANKO SENTRAL NA PILIPINAS)

CENTRAL BANKS AND FEDERAL RESERVE BANKS IN THE WORLD AND THEIR DEVELOPMENT

Central Bank
- term used to describe the authority responsible for policies that affect a country’s supply of money and credit.
- uses its tools of monetary policy—open market operations, discount window lending, changes in reserve requirements —
to affect short-term interest rates and the monetary base (currency held by the public plus bank reserves) and to achieve
important policy goals.

Origin of Central banks

- Central banks have developed in two ways
• One is through a slow process of evolution
Example: Bank of England.
• Other way is the creation of central banks by governments
Example: Federal Reserve System of the United States and the Bangko Sentral ng Pilipinas
- The development of early central banking has been a gradual process.
- The first central banks evolved in Europe due to the great need to safeguard the interests of the bankers, and to improve
monetary conditions. Such banks were privately owned and were generally known as banks of issue or as national banks.
- In later years they gradually performed the functions of central banking.
- The state granted them the sole right to note issue (issuance of money), and the authority to act as note issue (issuance
of money and the authority to act as agent and banker of the government.

Some brief notes on the oldest central banks.

Bank of England
o It was organized in 1694 as a joint stock company
o It extended financial assistance to the distressed government of William III
o In return the government granted the Bank of England the privilege of note issue
o However other banks were also conferred the same privilege
o In later years the Bank of England enjoyed a partial monopoly of note issue and only its notes were declared by the
government to be legal tender
o In addition its functions gradually expanded as the banker and agent of the government
o Through years the bank developed into a central bank. It became a model to other countries
o It was only in 1946 that the Bank of England was nationalized by the British Parliament. Said bank has been considered
the oldest real central bank.

The Riskbank of Sweden

o It was established in 1656 as a private bank
o However it was reorganized in 1668 as a State Bank.
o It gradually developed into a central bank using the Bank of England as a model
o During the early years of Riskbank it enjoyed the sole right of note issue
o Such monopoly of note issue was shared by other banks that were established in later years
o It was only in 1830 that Riskbank regained its monopoly power of note issue

The Bank of France

o It was created in 1800 mainly from private capital and the rest form government funds
o The founder of said bank was Napoleon Bonaparte
o It was the government’s banker and it had the sole right of note issue
o In later years its functions expanded and developed into central banking
oThe government participated in the operations of the bank through the appointment of the governor and two sub governors
o In the case of the private stockholders they were represented by a board of fifteen regents who were elected by the two
hundred biggest stockholders

Other Central Banks

The Bank of the Netherlands
o was founded in 1814 with private capital
o However the government appointed the president and secretary of the managing board while the stockholders selected
the other members of the managing board and the board of directors
National Bank of Austria
o it was established in 1817 to restore monetary stability in the country

Bank of Norway
o established in 1817 with private capital
o Its further development was similar with that of the Riksbank of Sweden
o Although it was funded with a private capital its top officials were appointed by the king and the others were elected by
the members of the legislature
o In subsequent years Denmark, Belgium, Spain, Russia, Germany, and Japan put up their respective central banks. At
the end of 1800 almost all countries in Europe and other parts have organized their own central banks

Creation of New Central Banks

o First decade of 1900 all countries in North America, South America, and Central America had no central banks
o Even countries with ancient civilization like China and India were still without central banks
o In the case of the United States it has established its central bank only in 1913 during the time of President Wilson
o This was followed by South Africa which created it South African Reserve Bank in 1921
o In view of the clearly perceived economic benefits of central banking specifically in the areas of monetary stability,
international trade, and economic development, many of those countries without central banks have instituted their own
central banks during the last fifty years since 1921

Here is a list of some of the more familiar places with the corresponding dates of the creation of their central banks
▪ Central Bank of China 1928
▪ National Bank of Iran 1928
▪ Bank of Canada 1935
▪ Reserve Bank of India 1935
▪ Bank of Thailand 1942
▪ State Bank of Pakistan 1948
▪ National Bank of Cuba 1950
▪ Bank of Korea 1950
▪ Union Bank of Burma 1952
▪ Bank of Indonesia 1953
▪ Bank of Israel 1954
▪ Central Bank of Malaysia 1958

Challenges for the Future

1st Challenge
The key challenge being seen facing central banks in the future will be to balance their three policy goals.
o Primary goal of the central bank is to provide price stability (currently viewed as low inflation over a long-run period).
This goal requires credibility to work. In other words, people need to believe that the central bank will ti ghten its policy if
inflation threatens. This belief needs to be backed by actions. Such was the case in the mid-1990s when the Fed tightened
in response to an inflation scare. Such a strategy can be greatly enhanced by good communication.
o Second policy goal is stability and growth of the real economy. Considerable evidence suggests that low inflation is
associated with better growth and overall macroeconomic performance. Nevertheless, big shocks still occur, threatening
to derail the economy from its growth path. When such situations threaten, research also suggests that the central bank
should temporarily depart from its long-run inflation goal and ease monetary policy to offset recessionary forces. Moreover,
if market agents believe in the long-run credibility of the central bank’s commitment to low inflation, the cut in policy interest
rates will not engender high inflation expectations. Once the recession is avoided or has played its course, the central bank
needs to raise rates and return to its low-inflation goal.
o Third policy goal is financial stability. Research has shown that it also will be improved in an environment of low inflation,
although some economists argue that asset price booms are spawned in such an environment. In the case of an incipient
financial crisis such as that just witnessed in August 2007 the current view is that the course of policy should be to provide
whatever liquidity is required to allay the fears of the money market. An open discount window and the acceptance of
whatever sound collateral offered are seen to be the correct prescription. Moreover, funds should be offered at a penalty
rate. The Fed followed these rules in September 2007 although it is unclear whether the funds were provided at a penalty
rate. Once the crisis is over, which generally is in a matter of days or weeks, the central bank must remove the excess
liquidity and return to its inflation objective. The Federal Reserve followed this strategy after Y2K. When no financial crisis
occurred, it promptly withdrew the massive infusion of liquidity it had provided. By contrast, after providing funds following
the attacks of 9/11 and the technology bust of 2001 it permitted the additional funds to remain in the money market once
the threat of crisis was over. If the markets had not been infused with so much liquidity for so long, interest rates would n ot
have been as low in recent years as they have been and the housing boom might not have as expanded as much as it did.

2nd Challenge
Related to the first is for the central bank to keep abreast of financial innovations, which can derail financial stability.
Innovations in the financial markets are a challenge to deal with, as they represent attempts to circumvent regulation as
well as to reduce transactions costs and enhance leverage. The recent subprime crisis exemplifies the danger, as many
problems were caused by derivatives created to package mortgages of dubious quality with sounder ones so the instruments
could be unloaded off the balance sheets of commercial and investment banks. This strategy, designed to dissipate risk,
may have backfired because of the opacity of the new instruments.

3rd Challenge
Facing the Federal Reserve in particular is whether to adopt an explicit inflation targeting objective like the Bank of England,
the Bank of Canada, and other central banks. The advantages of doing so are that it simplifies policy and makes it more
transparent, which eases communication with the public and enhances credibility. However, it might be difficult to combine
an explicit target with the Fed’s dual mandate of price stability and high employment.

4th Challenge
For all central banks is to account for globalization and other supply-side developments, such as political instability and oil
price and other shocks, which are outside of their control, but which may affect global and domestic prices. The final
challenge concerns whether implicit or explicit inflation targeting should be replaced with price-level targeting, whereby
inflation would be kept at zero percent. Research has shown that a price level may be the superior target because it avoids
the problem of base drift (where inflation is allowed to cumulate), and it also has less long-run price uncertainty. The
disadvantage is that recessionary shocks might cause a deflation, where the price level declines. This possibility should not
be a problem if the nominal anchor is credible, because the public would realize that inflationary and deflationary episodes
are transitory and prices will always revert to their mean, that is, toward stability.
Such a strategy is not likely to be adopted in near future because central banks are concerned that deflation might get out
of control or be associated with recession on account of nominal rigidities. In addition, the transition would involve reducing
inflation expectations from the present plateau of about 2 percent, which would likely involve deliberately engineering a
recession—a policy not likely to ever be popular

BRIEF HISTORY OF BANGKO SENTRAL

- Commonly abbreviated as BSP in both Filipino and English
- is the CentralvBank of the Philippines.
- established on July 3, 1993 pursuant to the provision of Republic Act 7653 or the New Central Bank Act of 1993 as
amended by Republic Act 11211 or the New Central Act of 2019

HISTORY

American era and World War II

o 1900 the First Philippine Commission passed Act No. 52 which placed all banks under the Bureau of the Treasury and
authorizing the Insular Treasurer to supervise and examine banks and all banking activity
o 1929 Department of Finance through the Bureau of Banking took over bank supervision
o 1933 a group of Filipinos had conceptualized a central bank for the Philippine Islands
o It came up with the rudiments of a bill for the establishment of a central bank after a careful study of the economic
provisions of the Hare–Hawes–Cutting Act which would grant Philippine independence after 12 years but reserving military
and naval bases for the United States and imposing tariffs and quotas on Philippine exports.
o Hare–Hawes–Cutting Act would be rejected by the Senate of the Philippines at the urging of Commonwealth President
Manuel L. Quezon.
o This Senate then advocated a new bill that won United States President Franklin D. Roosevelt's support this would be the
Tydings–McDuffie Act which would grant Philippine independence on July 4, 1946
o As required by the Tydings–McDuffie Act the National Assembly of the Philippines in 1939 passed a law establishing a
central bank. As it was a monetary law it required the approval of the President of the United States Franklin D. Roosevelt
did not give his.
o A second law was passed in 1944 under the Japanese controlled Second Republic during the Second World War but the
1945 arrival of American liberation forces aided by Philippine Commonwealth troops and recognized guerrillas aborted its
implementation.
Third Republic and Martial Law
o Shortly after President Manuel Roxas assumed office in 1946 he instructed then Finance Secretary Miguel Cuaderno Sr.
to draw up a charter for a central bank.
o The establishment of a monetary authority became imperative a year later as a result of the findings of the Joint Philippine-
American Finance Commission chaired by Cuaderno.
o The Commission which studied Philippine financial, monetary, and fiscal problems in 1947 recommended a shift from the
dollar exchange standard to a managed currency system.
o A central bank was necessary to implement the proposed shift to the new system.
o Roxas then created the Central Bank Council to prepare the charter of a proposed monetary authority. It was submitt ed
to Congress in February 1948
o By June of 1948 the newly proclaimed President Elpidio Quirino who succeeded President Roxas affixed his signature
on Republic Act No. 265 the Central Bank Act of 1948
o On January 3, 1949 the Central Bank of the Philippines was formally inaugurated with Miguel Cuaderno Sr. as the first
governor.
o The main duties and responsibilities of the Central Bank were to promote economic development and maintain internal
and external monetary stability.
o Over the years changes were introduced to make the charter more responsive to the needs of the economy.
oNovember 29, 1972 President Ferdinand Marcos Presidential Decree No. 72 amended Republic Act No. 265
emphasizing the maintenance of domestic and international monetary stability as the primary objective of the Central Bank.
o The Bank's authority was also expanded to include regulation of the entire financial sys tem of the Philippines and not just
supervision of the banking system
o In 1981 RA 265 as amended was further improved to strengthen the financial system among the changes was the increase
in the capitalization of the Central Bank from Php10 million to Php 10 billion.
o By 2019 President Duterte signs RA 11211 further increasing the capitalization to Php 200 billion.

o In the 1973 Constitution the interim Batasang Pambansa (National Assembly) was mandated to establish an
independent central monetary authority.
o Presidential Decree No. 1801 designated the Central Bank of the Philippines as the central monetary authority (CMA).
o According to a confidential October 19, 1984 Monetary Board report the Central bank overstated the country's dollar
reserves $600 million.
o The 1987 Constitution adopted the CMA provisions from the 1973 Constitution that were aimed essentially at
establishing an independent monetary authority through increased capitalization and greater private sector representation
in the Monetary Board.

Present
o In accordance with a provision in the 1987 Constitution President Fidel V. Ramos signed Republic Act No. 7653
otherwise known as the New Central Bank Act into law on June 14, 1993 The law provides for the establishment of an
independent monetary authority to be known as the Bangko Sentral ng Pilipinas, its primary objective being the maintenance
of price stability. This objective was only implied in the old Central Bank charter. The law also gives the Bangko Sentral
fiscal and administrative autonomy which the old Central Bank did not have.
o On July 3, 1993 the New Central Bank Act took effect.
o On the evening of September 26, 2012 Wednesday the BSP website was hacked by a group named Anonymous
Philippines in a protest against the recently passed Cybercrime Prevention Act of 2012
o The website was promptly restored in the early hours of the following day.
o April 23, 2013 The Asian Banker named the BSP as the Best Macroeconomic Regulator in the Asia-Pacific Region for
2013 in The Asian Banker Leadership Achievement Awards in Jakarta, Indonesia.
o The BSP was cited as a “good, strong, and fair-minded regulator.”
o About a month later the BSP was given the country award by the Child and Youth Finance International in its 2013
International Summit in Istanbul, Turkey, in recognition of its initiative to integrate financial education in the Philippine
elementary school curriculum.
o February 14, 2019 RA No. 11211 was passed amending RA No. 7653 The Charter Amendments bolster the capability
of the BSP to safeguard price stability and financial system stability.

BANGKO SENTRAL NG PILIPINAS

- central bank of the Republic of the Philippines
- established on July 3, 1993
- pursuant to the provision of the 1987 Philippine Constitution and the New Central Bank of 1993
- took over from the Central Bank of the Philippines which was established on January 3, 1949 as the country's central
monetary authority
- enjoys fiscal and administrative autonomy from the National Government in the pursuit of its mandated responsibi lities

BSP VISION
The BSP aims to be a world-class monetary authority and a catalyst for a globally competitive economy and financial
system that delivers a high quality of life for all Filipinos.

BSP MISSION
BSP is committed to promote and maintain price stability and provide proactive leadership in bringing about a strong
financial systembconducive to a balanced and sustainable growth of the economy. Towards this end, it shall conduct sound
monetary policy and effective supervision over financial institutions under its jurisdiction.

PRIMARY OBJECTIVES OF BSP:

a) To maintain price stability conducive to a balanced and sustainable growth of the economy
b) promote and maintain the monetary stability and the convertibility of the peso
c) To provide policy directions in the areas of money, banking, and credit, with supervision over the operations of banks and
with regulatory powers over the operations of finance companies and non- bank financial institutions performing quasi
banking functions. (Sec 3)

BSP CORE VALUES

(1) Excellence – Consistently doing our best to master our craft, continually improving our competencies, and learning new
things in pursuit of the organizational goals, comparable to the best practices of other central banks;
(2) Patriotism – Selfless commitment to the service of the Filipino people and the country;
(3) Integrity – Performing mandate with sincerity, honesty, and uprightness, worthy of respect and emulation from others;
(4) Solidarity – Performing with team spirit; acting and thinking as one in the pursuit of common goals and objectives; and
(5) Accountability – Taking full responsibility for one’s or group’s actions.

RESPONSIBILITY OF THE BSP

1. To provide policy directions in the areas of money, banking, and credit;
2. To supervise the operations of the banks and to exercise such regulatory and examination powers as provided under
Republic Act No. 11211 (The New Central Bank Act, as amended) and other pertinent laws over the quasi -banking
operations of non-bank financial institutions; and
3. To exercise regulatory and examination powers over money service businesses, credit granting businesses, and
payment system operators.

BSP's ORGANIZATIONAL STRUCTURE as of May 2, 2018

GOVERNANCE OF THE BANK

- Monetary Board exercises the powers and functions of the BSP such as the conduct of monetary policy and supervision
of the financial system. Its chairman is the BSP Governor with five full-time members from the private sector and one
member from the Cabinet.
- Governor is the chief executive officer of the BSP and is required to direct and supervise the operations and internal
administration of the BSP.
- A deputy governor (or a Senior Assistant Governor in the case of the Currency Management Sector) heads each of the
BSP's operating sector as follows:
• Monetary and Economics Sector is mainly responsible for the operations/activities related to monetary policy formulation,
implementation, and assessment
• Financial Supervision Sector is mainly responsible for the regulation of banks and other BSP-supervised financial
institutions, as well as the oversight and supervision of financial technology and payment systems
• Currency Management Sector is mainly responsible for the forecasting production, distribution, and retirement of
Philippine currency, as well as security documents, commemorative medals, and medallions
• Corporate Services Sector is mainly responsible for the effective management of corporate strategy, communications,
and risks, as well as the BSP's human, financial, technological and physical resources to support the BSP's core functions.
BSP Monetary Board (MB)
The current members of the Monetary Board as of August 29, 2020 are:
➢ BENJAMIN DIOKNO - BSP Governor and Chairman of the MB
o FRANCISCO G. DAKILA, JR. – Deputy Governor of the BSP
o MA. ALMASARA TUAÑO-AMADOR - Deputy Governor of the BSP
o CHUCHI FONACIER - Deputy Governor of the BSP
➢ CARLOS DOMINGUEZ III - Secretary of the Department of Finance
➢ ANTONIO S. ABACAN, JR.
➢ JUAN D. DE ZUÑIGA, JR.
➢ V. BRUCE J. TOLENTINO
➢ FELIPE M. MEDALLA
➢ PETER B. FAVILA

POWERS OF THE MONETARY BOARD

1. Issue rules and regulations
2. Direct management, operations, and administration of Bangko Sentral
3. Establish a human resource management system
4. Adopt an annual budget for effective administration and operation of Bangko Sentral

MONETARY BOARD
Monetary Board-composed of seven (7) members appointed by the President of the Philippines for a term of six (6) years:
(a) The Governor as Chairman
(b) A member of the Cabinet designated by President of the Philippines
(c) Five (5) members who shall come from the private sector all of whom shall serve full time.
* No member of the Board may be reappointed more than once.

QUALIFICATIONS OF MEMBERS OF MONETARY BOARD

• Must be natural-born citizens of the Philippines
• At least 35 years of age with the exception of the Governor who should at least be 40 years of age
• Of good moral character of unquestionable integrity of known probity and patriotism
• With recognized competence in social and economic disciplines characterelement

Monetary Board-policy-making body of Bangko Sentral

The Monetary Board weekly meeting shall:
- endeavor to control any expansion or contraction in monetary aggregates which is prejudicial to the attainment or
maintenance of price stability
- preserve the international value of peso
- maintain international reserves adequate to meet any unforeseeable net demands on BSP for foreign currencies
- determines the exchange rate policy of the country
- providing liquidity of the banking system time to need

BSP's in the Philippines

BSP MAIN COMPLEX

- The BSP Main Complex in Manila houses the offices of the Governor, the Monetary Board and the different operating
departments/ offices.
- The Complex has several buildings, namely: 5-Storey building, Multi-storey building, the EDPC building and the BSP
Money Museum, which showcases the Bank's collection of currencies.

BSP SECURITY PLANT COMPLEX

- The Security Plant Complex which is located in Quezon City houses a banknote printing plant, a securities printing plant,
a mint and a gold refinery.
- The banknote printing plant and the mint take care of producing currency notes and coins, respectively.
BSP HAS THREE REGIONAL OFFICES
- BSP has three regional offices performing cash operations, cash administration, loans and rediscounting, bank supervision
and gold buying operations. These regional Offices are located in La Union, Cebu City and Davao City and 19 branches all
over the Philippines.

3 PILLARS OF CENTRAL BANKING

1st Pillar: Price Stability
What is price stability?
- through the conduct of monetary policy.
- BSP’s Primary mandate
- refers to low and stable inflation
- preserves purchasing power

How are Price Measured?

Consumer Price Index - represents the average price of a standard basket of goods and services consumed by a typical
Filipino family for a given period.
Inflation Rate - annual percentage change in consumer price index.
Inflation - sustained increase in the average prices of goods and services typically purchased by consumers.

Price Level vs. Inflation

The formula for calculating the Inflation Rate looks like this: ((B - A)/A)*100
Year 1 Year 2 Year 3
Price level P100 P110 P120
Increase in prices P10 P10
Inflation (rate of increase in prices) 10.0% 9.1%
• Prices increased but inflation slowed down...
• ...but consumers will usually fixate on the rise in prices rather than on the slowdown in inflation.

How does the BSP promote price stability?

• Prices are determined by interaction of supply and demand
BSP ( Demand Falls : Supply Rises) = Price Falls
BSP ( Demand Rises: Supply Falls) = Price Rices

BSP
• Monetary Policy – actions taken to manage the availability and cost of money and credit to attain stable prices.
• Instruments
-Policy Rates – RRP/RP
-Open Market Operations
-Reserve Requirements
-Rediscounting
-Special Deposit Account
• Open Market Operations – key component of monetary policy implementation. These consist of repurchase and revers e
purchase transactions, outright transactions, and foreign exchange swap.

FISCAL POLICY
- refers to the combination of policies on:
TAXATION
EXPENDITURES adopted by the
BORROWING
BUDGETING
ACCOUNTING
AUDITING
• adopted by the government to achieve objectives
* End product of fiscal administration
* Serves as tools to achieve general welfare objectives and shape and influence by the POLITICAL PROCESS.

MONETARY POLICY
- concerned with the control of the aggregate supply of money (cash in pockets and balances in bank accounts) in the
economy and is monitored and shaped primarily by the Central Bank
- a tight and easy money regimes are simply its effects.
- its major objectives are price economic growth

LIQUIDITY MANAGEMENT
- BSP formulation and implements monetary policy aimed at influencing monetary supply contentment with its primary
objectives to maintain price stability
- its conduct is an art, involving a delicate balancing act, the use of appropriate tools, the sending of proper signals to the
market on its broad intentions.

How does the BSP's Monetary Policy Work?

Case: Inflationary pressures due to excessive demand
Required Action: BSP to slow down inflation by implementing contractionary monetary policy.

The BSP INCREASES policy interest rate

• Banks interest rates will follow the increase
• Higher cost of borrowing
• Investment Growth will be slower
• Aggregate demand growth will be slower
= LOWER INFLATION
➢ BSP uses the policy interest rates for Repurchase Agreement (Repos) and Reverse Repos (RRPs) to signal to the market their intention
to tighten or loosen monetary policy or simply maintain the status quo. These are made by the MB.

What is the BSP's Monetary Policy Framework?

- Inflation Targeting - involves publicly announcing an inflation target which the BSP promises to achieve over a certain
period.
- Inflation Targets - 2016-2018: 3.0% plus/minus 1.0 ppt (2.0% - 4.0%)

Why adopt Inflation Targeting?

- Simple framework
- Allows greater focus on price stability
- Forward-looking
- Enables comprehensive approach to monetary policy
- Increases accountability of BSP and helps build credibility
- Promotes transparency in monetary policy
• Under inflation targeting, monetary policy decisions as well as outlook for inflation of the BSP are
communicated to the public regularly through various means. If the BSP maintains its credibility, then inflation expectations
will remain well anchored.

2nd Pillar: Financial Stability

What is Financial Stability?
- through banking supervision and regulation.
- financial system is able to effectively distribute and manage FUNDS between surplus (savers) and deficit units (spenders)
and RISKS attendant to the movement of funds and provision of service.

How does the BSP Supervise and Regulate Financial Institutions?

(picture slide 52)

The BSP enables the development of an inclusive financial system by looking at a holistic approach based on four
key areas:

Policy, Regulation and Supervision

 The BSP ensures that an enabling policy and regulatory environment is in place through the issuance of various
regulations conducive to financial inclusion. The general approach is characterized by openness to innovations and market -
based solutions which can have a transformative role in expanding the scale and reach of financial services.

Financial Education and Consumer Protection

The BSP conducts activities aimed at increasing the financial literacy of various targeted audiences and ensuring that
financial consumers are protected by issuing standards on disclosure and transparency, fair treatment, effective recourse
and privacy of client information. The BSP believes that promoting financial education and consumer protection is a shared
responsibility among financial institutions, the BSP and the financial consumers.

Advocacy
Advocacy efforts to promote financial inclusion help increase awareness, understanding and appreciation of financial
inclusion. The BSP is highly involved in various projects and activities in partnership with other public and private sector
stakeholders through local and international linkages.

Data and Measurement

There is a need to collect inclusion-relevant information to benchmark, monitor and assess progress. The BSP is
stepping up efforts in developing a comprehensive financial inclusion data framework to identify existing gaps and
opportunities, and inform evidence-based policy making.

Regulations
- Banking Laws
• Republic Acts (RAS) and Implementing Rules andvRegulations (IRR) of RAS
• Presidential Decrees (PDS)
• Frequently Asked Questions on BSP Issuances
= BSP Issuance
= Guidelines on the Establishment of Banks
- Implementation of Basel Standards in the Philippines
- Compliance with IFRS and the Financial Reporting Package
= Other Regulations
= Financial Sector Assessment Program (FSAP)

Other Regulations
• Registration of Pawnhops and Money Service Business (MSBs)
• Foreign Loan Approval and Registration System (FLARES)
- Primer
- FLARES User Account Registration Form
• Application for Approval Registration of Foreign Loan of Private Sector Entities
• Rules on Foreign Investments (as of February 2014)
• Foreign Borrowings Plan
- Loan Profile
• Request for Monetary Board Opinion on Domestic Government Borrowings
• Schedule of Briefings on Pawnshop Regulations and Anti-Money Laundering Act (AMLA) Seminars for 2018.

ORIGINATING CIRCULARS OF CURRENT RISK-BASED CAPITAL ADEQUACY FRAMEWORKS

Basel III
- Circular No. 781: 01.15.2013
- Basel III Implementing Guidelines on Minimum Capital Requirements

Basel II
- Circular No. 538: 08.04.2006
Revised Risk-Based Capital Adequacy Framework for Universal and Commercial Banks and their Subsidiary Banks and
Quasi-banks

Basel 1.5
- Circular No. 688: 05.26.2010
- Revised Risk-Based Capital Adequacy Framework For Stand Alone Thrift Banks, Rural Banks and Cooperative Banks
Basel I
- Circular No. 400: 09.01.2003
- Guidelines on the adoption of the risk-based capital adequacy framework by stand-alone quasi-banks

- Circular No. 280: 03.29.2001

- Guidelines on the adoption in the Philippines of the risk-based capital adequacy framework pursuant the General Banking
Law of 2000 (superseded by Circular No. 688)

ADVOCACIES
BSP Initiatives on Microfinance
- To provide the enabling policy and regulatory environment
- To increase the capacity of banking sector on microfinance operations
- To advocate the development of sound and sustainable microfinance operations
Anti-Money Laundering
Financial Literacy
Economic Information
- enhance public awareness on the role of the BSP in the Philippine economy and help manage inflation expectations and
reputational risks
- The BSP initiatives to improve the Overseas Filipinos' (OFs) remittance environment
✓ Improving access to financial services
✓ Encouraging OFs and their families to increase savings and investment
✓ Promoting financial learning among OFs and their beneficiaries

FINANCIAL INCLUSION PROGRAMS OF THE BSP

Microfinance : Continued proactive stance in microfinance to support the development of a
sustainable microfinance business environment.
Economic and Financial Learning Program (EFLP) : Sustained implementation of EFLP to promote creater public
awareness of a conomic and financial issues to enable households and businesses to make well -informed economic and
financial decisions
National Strategy for Financial Inclusion (NSFI) : Spearheaded the formulation of NSF as a roadmap in promoting further
financial inclusion and inclusive growth

PROMOTE CREDIT DELIVERY THRU BMBES

Republic Act No. 9178
Barangay Micro Business Enterprises (BMBE) Act of 2002
- To mainstream BMBEs in the economy
- To grant incentives and other benefits to BMBES

BSP's role
- Formulate implementing rules on credit delivery/guarantee to BMBEs as well as incentive programs, and monitor
implementation of the law
- Consider loans granted to BMBEs under RA 9178 as alternative compliance with RA 9501 (Magna Carta for Micro, Small
and Medium Enterprises)

2014 Implementation
- 1 U/KB, 1 TB, 8 RBS, 2 coop banks
- Retail lending - P40.6 million
- 3,465 borrowers
- Wholesale funds for on-lending - P332.2 million

FINANCIAL SECTOR ASSESSMENT PROGRAM (FSAP)

- International Monetary Fund (IMF) and The World Bank jointly conducted the Financial Sector Assessment Program (FSAP)
review for the Philippines in November 2009 following the last FSAP mission conducted in 2002.
- FSAP involves an assessment of the strengths and weaknesses of the financial sector. The results of the FSAP review
are reflected in the Technical Notes on "Focused Update of the Basel Core Principles for Effective Banking Supervision
(BCP)" and "Access to Finance", which are posted on the website of of the World Bank.

-The Technical Note on "Focused Update of the BCP

• contains an assessment on the BSP's compliance with the standards for sound prudential regulation and supervisio n of
banks.
• recognizes the improvements in the regulatory and the supervisory framework for banks since the last FSAP mission.

-The Technical Note on Access to Finance

• speaks of the progress made by the BSP in strengthening the regulatory framework for advancing microfinance and mobile
financial services
• addresses six questions:
1) what is the access to and use of financial services in the Philippines, how does it vary, and how does it compare to other
countries?
2) What financial services are available to different market segments?
3) How do different categories of financial institutions contribute to outreach, and what is their potential to expand outreach?
4) How does the regulatory environment support access to finance?
5) What financial infrastructure is available to make credit decisions?
6) What are the results of government policies or programs to promote access to financial services?
• note concludes with recommendations to improve access to finance.

The Financial Sector Assessment Program (FSAP) is a joint program of the International Monetary Fund and the
World Bank. Launched in 1999 in the wake of the Asian financial crisis, the program brings together Bank and Fund expertise
to help countries reduce the likelihood and severity of financial sector crises. The FSAP provides a comprehensive
framework through which assessors and authorities in participating countries can identify financial system vulnerabilities
and develop appropriate policy responses.
The program also helps bring financial sector analysis closer to the center of economic policy discussions within a
country and with the Fund and the Bank. Participating in the program helps inform domestic policy -makers of the need for
sequenced actions in areas requiring urgent attention and offers countries a comprehensi ve framework in which to take on
financial sector reforms. It also provides countries with an opportunity to measure their compliance with financial sector
standards and codes and, therefore, to benchmark their regulatory and supervisory systems against internationally -
accepted practices.
The program also represents a collaborative international effort. Staff undertaking the assessment are drawn from the
World Bank and International Monetary Fund, as well as more than 50 official institutions central bank s and supervisory
agencies from around the world. The international bodies responsible for developing relevant financial sector standards
also work closely with Fund and Bank staff in implementing this program.

The FSAP follows a three-pronged approach when looking at the country's financial sector:
1. The soundness of a financial system versus its vulnerabilities and risks that increase the likelihood or potential severit y
of financial sector crises
2. A country's developmental needs in terms of infrastructure, institutions and markets
3. A country's compliance with the observance of selected financial sector standards and codes

3rd Pillar: Efficient Payment and Settlement System

* through operation of real-time gross settlement system.
What is the National Payments and National System?
- includes the country's entire matrix of institutional and infrastructure arrangements and processes through which money
is transferred from one party to another.
- makes the transfer of funds between two parties easier.

PhilPaSS Transaction
- interbank lending/borrowing
- remittance of BIR and BOC taxes/duties
- high-value customer payments
- settlements of remittance
- settlement of ATM transactions
- Government securities trading
- BSP's open market operations
- Foreign currency trading

Roles of the BSP in Payment and Settlement System

1) Operator of the real time gross settlement system known as PhilPass
BSP through its Payments and Settlements Office (PSO). serves as the payment system operator responsible for the
operation and maintenance of PhilpaSS and its critical components. It ensures that the operation of PhilPass is continuous,
safe and efficient so that time-critical payments are completed as expected to facilitate and enhance economic processes,
manage risks and absorb shocks in order to promote financial stability

2. Provider of credit facilities to banks as a lender of last resort

As payment systems affect the daily demand for liquidity of banks/ financial institutions and may therefore affect the level
of money market interest rates, the BSP a fender of last resort, provides the following liquidity tools to PhilPaSS participants:
Intraday Liquidity Facility (ILF) - a fully collateralized facility established to maintain the smooth and efficient operation of
the payments system in order to avoid interbank payments gridlock in the settlement process within PhiPaSS business
hours
Overdraft Credit Line (OCL) - another collateralized facility which aims to assist bank experiencing unexpected or higher
than usual volume of inward check transactions. The governing policies and procedures are provided under BSP Circular
681 in order to provide additional liquidity for banks encountering liquidity problems due to check clearing losses as well as
protect the BSP against settlement exposures.

3. Overseer of the payments and settlements system

The BSP, through its Core Information Technology Sub-Group of the Supervision and Examination Sector conducts
information technology (IT) supervision and examination of banks and non-bank financial institutions (Fls) and the payments
systems. Its assessments of systems focus on determining the adequacy of IT management and operational controls over
data integrity and confidentiality and attendant risk exposures

4. User of its own RTGS system

The BSP, through its different departments, also make use of the payments and settlements system for the settlement of
its own transactions with its stakeholders, such as:
1. The automated collection and settlement of Supervision and Examination Sector annual supervisory fees.
2. Online processing of eRediscounting loan proceeds and collection of banks' maturing loans with Department of
Loans and Credit.
3. Processing/posting of banks cash deposit and withdrawal transactions with Cash Department.
4. Investment maturities of fund placed by the Provident Fund Office, and
5. Trading transactions as well as payments of maturing RRP/SDA placements with Treasury Department.

5. Initiate changes/reforms for the Payment system

The BSP, through its Payments and Settlements Steering Committee (PSSCOM), initiate the conduct of studies/research
relating to payments system to ensure that it grows and matures in accordance with the global standards.

The BSP's Various Responsibilities touch the lives of many Filipinos

(picture slide 70)

FUNCTIONS OF BANGKO SENTRAL

being the primary monetary authority, BSP performs the following functions:

1. Bank of Issue
• evolution of central banking points markedly to the note issue function.
• while it was usually the treasury that was changed with this function in the past, central bank and few commercial banks
were extended the note issue privilege provided that they met with the control meas ures instituted bythe state.
• with loss of confidence of note issue by the State and depreciation of currency’s value because of fiscal indiscretion.
• as there were banks which abused the power of note issue hence, there was a need for centralizing this pre rogative as
residuary monopolyof central banks.
 •
evident in different countries like:
✓ Holland (1814)
✓ England (1844)
✓ France (1848)
✓ Germany and Africa (1921)
✓ Columbia (1823)
✓ Australia (1924)
✓ Chile (1925)
✓ Italy (1926)
✓ New Zealand (1934)
✓ Canada (1935)
✓ Venezuela (1940)
✓ Philippines (1949)
• central bank in having the note issue power gives it the prerogative to impose regulation relating to the money used in a
country from currency issue and retirement.
• central bank see to it that all notes have adequate se curity and may be exchange at par and have the flexibility of being
expanded or contracted as the need arises.
Reasons for Concentration of Note Issue in Central Bank

i. To attain uniformity of note issue which declared legal tender.

ii. To control the issuance of currency in keeping with control on the credit operations of commercial banks.
iii. To consolidate the source of note issue rather than have different issues circulating at the same time.
iv. As a source of revenue.

2. As a Government Banker, Financier and Advisor.

As a Banker of the Government:

a. Bangko Sentral shall represent the government in all dealing, negotiations and transactions with the International Monetary
Fund, International Bank for Reconstruction and Development and other foreign or international financial institutions or
agencies;
b. Bangko Sentral shall be the official depository of the government, its political subdivisions, and instrumentalities as well as
of government-owned or controlled corporations’ cash balances. Bangko Sentral may pay interest on deposits of said
government, as well as on deposits of banks with them; and
c. Bangko Sentral shall open a general cash account for the Treasurer of the Philippines, in which the liquid funds of the
Government shall be deposited. Transfers of funds from this account to other accounts shall be made only upon order of
the Treasurer of the Philippines.
In the performance of its functions as fiscal agent:

a.
Bangko Sentral may engage the services of other government-owned and controlled banks and of other domestic banks for
operations in localities at home or abroad such as the issuance and placement of government securities and serving and
redemption of public debt.
b. Bangko Sentral may charge equitable rates, commissions, or fees for services which it renders to the Government, its political
subdivisions, and instrumentalities.
As a financial advisor:

a. Bangko Sentral gives financial advice on official credit operation of the government. Before undertaking any credit opera tion
abroad, the government through Secretary of Finance shall request the opinion in writing of the Monetary Board on the monetar y
implication of the contemplated action based on gold and foreign exchange resources, obligation of the nation, and effects o f it
on the balance of payment and on monetary aggregates and price level.
b. Bangko Sentral is ex-officio member of the National Economic Development Authority to assure effective coordination between
the economic, financial, and fiscal policies of the government and its monetary, credit and exchange policies

3. Custodian of the Cash Reserves of the Banks.

• bank reserves are the cash minimums that must be kept on hand byfinancial institutions to meet central bank requirements.
• bank cannot lend the money but must keep it in the vault, on-site or at the central bank. Bank reserves are created under
two categories as a bank policy and as required by law.
 • as a bank policy, bank should always maintain an adequate reserve as a safety measures of sound banking and l ikewise
compliance to thed requirement of monetary authority that certain percentage from these different deposits be set aside.
• monetary authority is strictly monitoring all banks activities if they are complying with it and even imposes penaltyfor bank
non-compliance.
• compliance to this provision makes a bank able to fulfill all its current obligation and the inevitable withdrawals by its
depositors.
• bank then creates and maintains properly a primary and secondary reserve to ensure its state of solvenc y.
Primary Reserve
- kind of reserve composed of all cash in vault, checks and other instruments due from the BSP and from other banks.
❖ It must be noted that this reserve is non-earning assets being kept in the bank and are highlysusceptible to losses that the bank
maintains in an adequate amount and made always available for disbursements.
❖ Bank creates another kind of reserve so that any shortages or surplus of funds form the primary reserves can easily be remedied
by means of a secondary reserve.

Secondary Reserve
- composed of the earning assets which can be easilyliquidated, such as the government securities, marketable securities – stocks and
bonds, commercial papers, bankers’ acceptances and callable loans and others.
❖ assets that serve as buffers to any failure (shortage) that may arise from the primary reserves and absorb any surpluses that
can be invested to generate income.

• as required by law, New Central Bank Act requires that banks operating in the Philippines maintain a certain percentage against
their different forms of deposit liabilities which takes form of a cash deposit in the BSP.
• monetary authority as the implementing bodypermits, as circumstances warrant that part of these bank deposits be in the form
of assets other than peso deposits. This aims to prevent any bank from lending the 100% deposit it receives.
• equivalent amount of this percentage is what is used to cove r all the partial and/or total withdrawals bythe depositors.
• this action taken by the central bank regarding legal reserve manipulation depends upon the economic environment at a given
period.
• in case of oversupply of money creating inflation, the legal reserve requirement (LRR) is made up higher with a purpose to cut
down too much moneyin the circulation.
• reserves deposited in the BSP only earns minimal interest, unlike the loans granted by the banks to borrowers or there in the
overnight interbank call loan market. Hence, bank officials are not happy every time this LRR got increased but nothing they can
do as it is the national interest which should take first or be the priority.
• cash reserves, aside from regulating the moneysupply can help the govern ment in times of financial crises.

4. Custodian of the Nation’s Reserves of International Currency

• central bank function is closely linked with its function as a bank of issue and as a custodian or commercial bank reserves.
• in the early years of central banking, central bank was required by law to maintain minimum reserves of international
currency against its note issue and deposit liabilities (cash reserves of commercial banks).
• when many countries were under the gold to be able to pay its note (paper m oney) which would be presented for payment.
This means the moneyin circulation was supported byan equivalent amount of gold.
• until such time when some central banks do not provide such required minimum reserve or currency issue since notes are
backed up by the total assets of central bank.
• central bank also become the custodian or keeper of international reserves as currencies are tied up to the dollar for there
external value.
• central bank ensures that the level of reserve is kept at an amount which will not threaten the conversion of a local currency
to freely convertible currency.
• purposes of keeping gold and foreign exchange are to meet problems in balance of payments and to maintain the external
value of the local currency.
• central bank needs to meet its local and international payments thus create trust and confidence with the people it serves
and the countries it deals with abroad.

5. Bank of Rediscount and Lender of Last Resort

• partly needing financial assistance has already shopped around and exhausted all means at his command to no avail.
• ultimate source or last resort would be the central bank which comes to rescue when all else failed.
• in line with BSP’s mandate of preserving the stability of the monetary and banking system and protecting th e interest of the
depositing public.
 • associated with rediscounting in which the central bank lends money to the banks in distress based on their promissory
notes or those of the borrowers (loan applicants). The central bank charges interest on its loans to the banks, called
rediscounting because the documents of indebtedness of loan applicants which are presented to the central bank are
promissory notes that were discounted by the bank when it granted the loans to the applicants.
• member banks can also take advances on approved short-term securities from the central bank to add to their cash
resources at the shortest time.
• facility of turning their assets into cash at short notice is of great use to them and promotes in the banking and credit sys tem
economy, elasticity, and liquidity.
• central bank by acting as the lender of the last resort assumes the responsibility of meeting all reasonable demands for
accommodation by commercial banks in times of difficulties and strains.

6. Bank of Central Clearance and Settlement.

• central bank acts a sort of clearing house. This means that banks send representatives to the clearing house at the central
bank where claims are demanded byone bank against another.
• banks have their own boxes at the clearing house. All checks placed in the boxes are payable to the banks which cashed
them.
• Example: representative of Bank A has in his possession the check of Bank B. The representative places the check of
Bank B in the box of Bank B. this means that Bank A demands payment form Ba nk B. through the process of bookkeeping
(debits and credits) banks’ claims against other banks are settled and cleared.
• these settlements are done through the reserves that all the banks have with the central bank.
• for checks issued and cashed in Metro Manila, the clearing of checks is conducted in the Philippine Clearing House
Corporation (PCHC).
• trusted as a neutral service bureau of the banks, PCHC extended its operating outfit by implementing several electronic
based payment system services for the banking community such as the Electronic Peso Clearing System (EPCS).
• Philippine Domestic Dollar Transfer System (PDDTS), and Project Abstract Secure (PAS) System.
• sorting processing and clearing of checks are done by computers.
• clearing of checks for provincial checks and Metro Manila checks is done manually at the Manila Clearing/Regional Clearing
Units of BSP. Cebu, Davao, and Bacolod have their own clearing units.

7. Controller of Credit.
• moneysupply can be controlled by controlling moneyand granting of credit in the circulation.
• higher moneysupplytriggers prevalence of high inflation or increase of the prices of goods and services.
• but when it becomes lower, prices are in same manner as well which discourages production. This is the law of supply.
• moneysupplyshould be regulated at an acceptable level to avoid said circumstances.
• if low prices are the results of market competition and technology, then the economic standing is favorable.
• with the commitment of the BSP to promote and maintain price stability, that means to offer lower prices thus conform with
the low purchasing power of the public.
• it is imperative for the central bank to limit not only the money supply but also the credit, because as credit intensifies
people’s purchasing power, supplyof moneyin the market gets augmented as well.

BSP’s control measures to either expand or contract credit operations of commercial banks and indirectly of other financial
institutions:

a. Increasing or decreasing discount rates (interest on loans imposed by private banks).

b. Increasing or decreasing rediscount rates (interest rates change bya central bank on loans granted by it to private banks).
c. Increasing or decreasing the legal reserve rates (fix by monetary board on the deposit liabilities of banks).
d. Buying or selling securities to restore the price sense (open market operations).
e. Selective credit controls either by:
Setting high marginal requirements on the letter of credit to restrict imports.
Establish priorities on loans or a matter of selecting projects for funding.
f. Persuading all parties concerned to support and cooperate with the monetary policies (moral suasion).

PRIVILEGES AND PROHIBITIONS

- Tax Exemption
- Exemption from Customs Duties
- Prohibitions
- Phase-out of Fiscal Agency Functions
- Phase-out of Regulatory Powers Over the Operations of Finance Corporations and Other Institutions

PLACEMENT UNDER CONSERVATORSHIP CESSATION OF BANKING BUSINESS

Three (3) Levels of Rehabilitation RA 7653 Section 29-33
Conservatorship --- Receivership --- Liquidation

CONSERVATORSHIP
- appointment of a conservator
- whenever a bank or quasi-bank is in:
• a state of continuing inability
• unwillingness to maintain a condition of liquidity
- Monetary Board may:
• appoint a conservator or to take change of assets and liabilities.
✓ conservator shall report and be responsible to the Monetary Board and shall have the power to overrule or revok e
the actions of the previous management and board of directors of the bank or quasi-bank.
✓ he must competent and knowledgeable in the bank operations and management.
✓ expenses attendant to the conservatorship shall be borne by the bank or quasi-bank bank concern.
• Reorganize the management
• Collect all monies and debts
• Exercise powers necessary to restore viability
* Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to operate on its
own and the conservatorship is no longer necessary.

- How long should the Conservatorship last?

• shall not exceed one (1) year

- When can the Monetary Board terminate the conservatorship

• institutions can operate on its own
• institutions would involve probable loss to its depositors and creditors.

RECEIVERSHIP
- Whenever a bank or quasi-bank is:
• Unable to pay its liabilities
• Has insufficient realizable assets to meet its liabilities
• Cannot continue business without involving probable losses to its depositors or creditors
• Has willfully violated a cease and desist order involving acts or transactions which amount to fraud or a dissipation
of the assets of the institution
- Philippine Deposit Insurance Corporation (PDIC) Functions and Obligations:
• Gather and take charge of all assets and liabilities of the institution
• Exercise the general powers
• Determine in not later than ninety (90) days from take over whether the institution should be rehabilitated or m ay
resume business with safety otherwise, proceed to LIQUIDATION.

LIQUIDATION
- Institution CANNOT be rehabilitated or permitted to resume business
Receiver/Liquidator shall:
• File ex-parte with Regional Trial Court and a petition for assistance in the liquidation of the instit ution
• Assist the enforcement of individual liabilities of stockholders, directors & officers
• Convert the assets of the institutions to money and dispose to creditors and other parties
• Institute actions to collect and recover shall be deemed in custodia legis in the hands of the receiver
Disposition of Banking Franchise
- may award the banking franchise of a bank under liquidation where said bank or its branches were previously operating
(Sec. 33)

Rulings on Bank Liquidation

- All claims against bank be pursued in the liquidation proceedings
- Actions of the Monetary Board are declared by law to be FINAL and EXECUTORY

REPUBLIC ACT NO. 8791

AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND OPERATIONS OF BANKS,
QUASI-BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES

CHAPTER V
PLACEMENT UNDER CONSERVATORSHIP

SECTION 67 Conservatorship The grounds and procedures for placing a bank under conservatorship, as well as the
powers and duties of the conservator appointed for the bank shall be governed by the provisions of Section 29 and the last
two paragraphs of Section 30 of the New Central Bank Act Provided. That this Section shall also apply to conservators hip
proceedings of quasi-banks. (n)

CHAPTER VI
CESSATION OF BANKING BUSINESS

SECTION 68 Voluntary Liquidation In case of the voluntary liquidation of any bank organized under the laws of the
Philippines, or of any branch or office in the Philippines of a foreign bank, written notice of such liquidation shall be sent to
the Monetary Board before such liquidation is taken, and the Monetary Board shall have the right to intervene and take such
steps as may be necessary to protect the interests of creditors. (86)

SECTION 69 Receivership and Involuntary Liquidation The grounds and procedures for placing a bank under
receivership or liquidation, as well as the powers and duties of the receiver or liquidator appointed for the bank shall be
governed by the provisions of Sections 30, 31, 32, and 33 of the New Central Bank Act Provided. That the petitioner or
plaintiff files with the clerk or judge of the court in which the action is pending a bond, executed in favor of the Bangko
Sentral, in an amount to be fixed by the court. This Section shall also apply to the extent possible the receivership and
liquidation proceedings of quasi-banks. (n)

SECTION 70 Penalty for Transactions After a Bank Becomes Insolvent Any director or officer of any bank declared
insolvent or placed under receivership by the Monetary Board who refuses to tum over the bank's records and assets to the
designated receivers, or who tampers with banks records, or who appropriates for himself or another party or destroys or
causes the misappropriation and destruction of the bank's assets, or who receives or permits or causes to be received in
said bank any deposit, collection of loans and/or receivables, or who pays out or permits or causes to be paid out any funds
of said bank, or who transfers or permits or causes to be transferred any securities or property of said bank shall be subject
to the penal provisions of the New Central Bank Act. (85a)

Key points
• To preserve purchasing power, the BSP's main objective is to maintain price stability. It uses inflation targeting as a
framework for conducting monetary policy. Consumers directly benefit.
• To help promote financial stability, the BSP supervises and regulates banks and other financial institutions. Depositors
and borrowers directly benefit.
• To ensure safe and efficient payments and settlements of financial transactions, the BSP owns and operates the PhilPass.
Transacting parties directly benefit.

THE ECONOMY AS A WHOLE BENEFITS

MODULE 3: BANKS AND BANKING PERSPECTIVES

HISTORICAL PERSPECTIVE WORLDWIDE

- Development of the banking system and early banking practices started in the temples of Babylon as far back as 2000
B.C.
- Credit transactions were engaged in as evidenced by tablets of clay found in the ruins of the ancient past.
- 4th century B.C. temples, public bodies, and private firms were dealing in the receipt of deposits and the loaning of funds.
- Greek system influenced both Egypt and Rome.
- 2nd century A.D. transactions were registered by public notaries.
- Forerunner of the clearing house were the settlements made at the Champagne fairs where purchases on credit were
recorded and no money changed hands, but rather, settlements were made at certain designated periods.

- Payment of interest on loans and charging of fees for safekeeping money were also evident during those times.
- Earlier versions of bank drafts and checks were in wide use in Assyria sometime during the 8th century B.C.
- Venetian bankers, perhaps, goes the credit of originating the overdraft, also interesting to note that it was the rule of the
day that men handling these transactions of lending and safekeeping money possessed a high degree of integrity and
business acumen.
- From slaves to freemen of affluence and wealth, self-made bankers even rose to positions of prominence and rank.
- Sedentary bankers of the Mediterranean cities, particularly Venice, Genoa, and Barcelona gave impetus to the commercial
banking system of today, the goldsmiths of old could rightfully claim to be the direct ancestors of banking business as a
whole.
- Some of the significant personages that dominated those times were the Lombard Jews.
- Medici family ushered in the second period of Florentine financial power.
- Greatest money lenders of the 16th century were the Fugger family.
- John Law's financial system almost spelled ruin to France, there were a host of others too numerous to mention. However,
they chanted a common refrain — they were in the favor of royalty and the government, and wielded power during their day.
- From the successes and failures, the hardships and laurels crowning the banking business, adherents to this lucrative
type of enterprise mushroomed into practically all nooks and corners of the world.
- Today, bank seems to shy off its humble beginnings for many-a-splendored function has been added to its then main
functions of receiving deposits and lending out funds.
- Preponderance of the commercial bank has not, however, lost its luster and its avowed place in the history of banking.

PHILIPPINE BANKING HISTORY

° From the Pre-Spanish times to the present, our banking history has withstood the traces of practically every race and
influence that dominated our country through the years.

SPANISH ERA
- 16th century first financial institution was organized in the Philippines to take care of the flourishing galleon trade existing
between the country and Mexico.
- institution was called Obras Pias.
- capital came from the pious Catholics and its funds were loaned out with interest.
- obras Pias ceased to operate in 1820 and was totally non-existent by 1851.

- Spanish government, cognizant of the improving progress, granted a charter to establish the first commercial bank in 1828.
- not until 1851 that the bank named Banco Espanol-Filipino started operations.
✓ performed general banking functions and partly financed foreign trade.
✓ given the privilege of note issue on 17 October 1854.
✓ bank still exists bearing the name Bank of the Philippine Islands (Banco delas Islas Filipinas).

- 1869 opening of the Suez Canal led to the accessibility of the European markets. British capital found attraction in the
Philippines.
- 1873 Chartered Bank of India, Australia, and China established branches in the country.
- Two (2) years later branch of the Hongkong and Shanghai Banking Corporation.
- establishments were engaged in general banking business.
- they also bought and sold drafts and bills of exchange.
- they were more in the category of exchange banks rather than the commercial banks that they are today.

- 1882 Monte de Piedad, a savings bank, commenced operations.

- 1883 1853 Banco Peninsular Ultramarino of Madrid put up a branch in the Philippines but stopped operations four years
later.
- End of the Spanish regime, there were four banks in operation, three of which were commercial and one a savings bank.
- supervision and regulation were negligible.
- Spanish Civil Code and the Code of Commerce regulating banking business.
- government had no definite commitments and responsibility to the banks and their clients.
- Filipino interest in the banking business then was almost nil.

AMERICAN ERA
- Banks operating during the Spanish regime continued to do business and were soon joined by branches of the International
Banking Corporation (subsequently absorbed by the National City Bank of New York) and the Guaranty Trust Company.
- 1906 Postal Savings Bank was created as part and parcel of the Bureau of Posts to inculcate the habit of thrift in the minds
of the people, particularly those in the low income groups.
- Two (2) years later Agricultural Bank, with a capitalization of P1,000,000.00, was established this failed, however, due to
meager capital.

- Until 1916 foreign banks dominated the Philippine scene, when the Philippine National Bank was granted its charter.
✓ capitalized at P20,000,000.00, which was almost entirely subscribed by the government and a little of it by privat e
citizens.
✓ granted the privilege to issue its own notes.
✓ engaged in extending short-term notes to merchants and long-term loans to agriculture and industry.
✓ established branches, agencies, and sub-agencies in the provinces.
✓ re-organized in 1934 and its capital was reduced to P 10,000,000.00.

- After World War I more banks were established:

✓ Yokohama Specie Bank (1919)
✓ China Banking Corporation (1920)
✓ Peoples Bank and Trust Company
✓ Mercantile Bank of China in (1926)

- Establishment of the Commonwealth, still other banks joined in.

✓ Nederlandsch Indische Handelsbank opened a branch in 1937.
✓ Philippine Bank of Commerce (first private bank with genuine Filipino capital, opened its doors for business) 1938.
✓ Bank of Taiwan was granted permission to operate a branch in Manila 1938.
✓ 1939 three banks commenced commercial banking operations, namely:
Bank of the Commonwealth.
Philippine Bank of Communications.
Government-owned Agricultural-Industrial Bank.

- At this time there were all in all:

✓ 17 banks with the same number of Manila offices.
✓ 22 provincial branches.
✓ 54 provincial agencies.
✓ 1,000 sub-agencies.
(total number of banks, two were government-owned and others were a mixture of domestic and foreign
capitalization)

- Definite steps to supervise and regulate banking business were necessary as some foreign banks were not only branches
but main offices.
- First Philippine Commission passed Act 52 which provided for the examination and inspection of banks as an initial step
toward the objective of safeguarding the interests of depositors and stockholders.
- BUREAU OF BANKING which was created in 1929, had the power of supervision over banks through the Bank
Commissioner.
- Insular Treasurer was thus relieved of such duties.
- 1930 marked a milestone in banking history with the establishment of the Manila Clearing House, which was organized
only by domestic banks.
- With these developments, banking industry gained stability and was exempted from the Banking Holiday of 1933.

JAPANESE ERA
- Second World War wrought havoc on the Philippine economy and did not spare the banking industry.
- During the Japanese occupation, only Filipino and Japanese-owned banks were given permission to operate.
- Southern Development Bank (Nampo Kaihatsu Ginko) opened a branch in Manila in 1942 and acted as the fiscal agent of
the Japanese government in the Philippines.
- it was some sort of a central bank, which engaged in the issuance of military notes and took custody of clearing interbank
balances.

POSTWAR ERA
- Liberation of Manila, banks operating in the Japanese occupation were unable to reopen for business.
✓ they could not meet their obligations in Philippine currency because the greater portion of their funds consisted of
military notes, bonds, and obligations of the Japanese-sponsored Republic, as well as the balances with Japanese
banks.
✓ banks, therefore, turned toward government aid.

- Presidential directive, Executive Order 96 invalidated all Japanese occupation deposits.

- wartime payments on bank loans with scrip money were, however, declared valid by the courts.
- Executive Order 48 paved the way for the reopening of the pre-war banks.
- first license was given to the National City of New York and several others followed suit.
- Commonwealth Act 725 approved in 1945 enabled domestic banks to reopen in March 1946.
✓ act provided a sum of P10,000,000.00 to rehabilitate the domestic banks through government subscription of
preferred shares.
- 1946 Postal Savings Bank boasted of added facilities in cities, provinces, and municipalities.

- Rehabilitation Finance Corporation was created by virtue of Republic Act 85 on January 2, 1947.
✓ it took over the functions and what was left of the Agricultural Industrial Bank.
✓ main objective was the rehabilitation of the war-ravaged country, as well as to step up economic development.

- During this period, Bank of America was granted permission to do business in Manila.
✓ existing banks, for their part, launched their individual program of expansion through the establishment of branches
in Manila and elsewhere.
✓ they also engaged in improving services to the general public.

- 1948 General Banking Act was passed into law.

✓ it provided the definitive rules of conduct for all banking institutions as to organization, management, and operation.
- 1949 Republic Act No. 265 otherwise known as the Central Bank Act was passed.
- Justification of the Bangko Sentral's existence today may be traced to the two (2) attendant problems of the Philippine
postwar period.
✓ one was the adjustment of the transition from a colonial raw-material-producing economy to that of an agro-
industrial economy, which befits a young, emerging independent country. This called for a shift from the 100%
reserve system to that of a more flexible system which led to the adoption of the managed currency.
✓ other problem was how to gear the resources of the banking system to the major economic objective.
- There was no centralization of the banking business as the banks were independent of one another.
- it necessitated, therefore, a centralized agency to coordinate and supervise the banking functions to attain the maximum
results.
- Central Bank was deemed to be the answer as it was charged with the responsibility of managing the monetary affairs of
the country.
- Influence of the banking system on the monetary management cannot be overlooked.

- 1972 Presidential Decree No. 72 was issued, amending Republic Act No. 265 to keep it attuned with changing economic
conditions.
✓ it adopted manyof the recommendations of the Joint IMF-CB Banking Survey Commission related to the objectives of the Central
Bank.
✓ its policy-making structures, scope of authority and procedures for dealing with problems of financial institutions.
✓ it emphasized the maintenance of domestic and international monetary stability as the C entral Bank's primary objective and
expanded its authority to include the supervision of the banking system and the regulation of the entire financial system.
- Succeeding changes were all directed at enhancing the capability of the Central Bank to enforce banking laws as well as
regulate financing institutions playing a key role in a fast developing Philippine economy.
- 1973 Constitution, Presidential Decree No. 1801 designated the Central Bank of the Philippines as the central monetary
authority, which the 1987 Constitution adopted aimed at essentially at establishing an independent monetary authority
through increased capitalization and greater private sector representation in the Monetary Board.

PHILIPPINE BANKING TODAY

• Republic Act No. 11211 or the New Central Bank Act of 2019
- amended the Charter of the Bangko Sentral ng Pilipinas.
- signed into law by President Rodrigo Duterte on February14, 2019.
- published and took in effect on February 19, 2019.
- among its salient features are the following:
1. It enhances corporate viability and independence of the BSP by increasing its capital from P50B to P200B. The
funding for the increase in capitalization will come from the declared dividends of the BSP in favor of the National
Government.
2. BSP will now include employment in its primary objective to maintain price stability conducive to a balanced and
sustainable growth of the economy.
3. It restores BSP's authority to issue debt papers as part of its regular operation.
4. It widens the coverage of institutions under BSP supervision, to include money service and credit granting
businesses, and payment system operators.
5. BSP income derived from its governmental functions will be exempt from taxes.

• Republic Act No. 7653 or the New Central Bank Act of 1993
- governs Philippine banking today.
- it provides for the establishment of an independent monetary authority to be known as the Bangko Sentral ng Pilipinas
(BSP), with the maintenance of price stability explicitly stated as its primary objective, and giving it much needed fiscal a nd
administrative autonomy, which the old Central Bank did not have.

• Philippines has a comprehensive banking system encompassing various types of banks, from large universal banks to
small rural banks and even non-banks.
• November 2018 there were:
✓ 43 universal and commercial banks.
✓ 57 thrift banks.
✓ 492 rural banks.
✓ 40 credit unions.
✓ 6,267 non-banks with quasi-banking functions in the Philippines.

• Provided under Section 4 of Republic Act No. 8791, known as “The General Banking Law of 2000” the operations and
activities of these banks are subject to supervision of the Bangko Sentral ng Pilipinas.

• Banking system in the Philippines has indeed made great strides through the years.
• Clear indication of this would very well he justified by the fact that we see banks to the right and to the left of us not only
in commercial centers but also in the remote areas of the country.
• Today, not only do commercial banks grace our business districts but we also have other types of banks such as the rural
banks, development banks, savings banks, and trust companies.
• Other institutions dealing in credit, which are either privately owned or established by the government.

• Business of banking has changed irreversibly, and banks must step up to meet clients' higher expectations for greater
safety, for better returns, and for more choices.
• Developments in technology have more contributions in these irreversible changes in the banking system.
• Technology has brought us e-banking, the provision of banking services (deposit taking, payments, mortgages, and other
financial services sold by banks) over the Internet or other electronic network.

• INSTRUMENTS OR DEVICES USED TO PROVIDE E-BANKING SERVICES ARE CALLED E-MONEY.

• E-money can be divided into three groups:
1. Access devices.
 ❖ allow people to withdraw or deposit cash, transfer funds, and pay bills from their bank accounts without physically
going to the banks or writing a check.
❖ these devices include Automated Teller Machines (ATMs) and home banking by telephone or computer.

2. Card-based products.
❖ prepaid cards in which funds are stored in electronic form on a computer chip (or integrated circuit) embedded in
the cards.
❖ they are also called stored-value card (SVC) products.

3. Prepaid software products or network money.

❖ involve funds that are stored in electronic form (on devices like the hard disk of a computer) and are transferred
over communications networks (such as the Internet) among participants in the network.

• February 2009 there were 6,455 banks that operated with automated teller machines, broken down as follows:
✓ universal and commercial banks, 6,455;
✓ thrift banks, 748;
✓ rural and cooperative banks, 83.
✓ 92 banks offered electronic banking services, such as phone, Internet and mobile banking, enhancing customer convenience with 24/7 banking
transactions.

• E-BANKING IS REGULATED BY FOUR MAIN BSP PRESCRIBED PRUDENTIAL GUIDELINES, NAMELY:

✓ Circular No. 240 (2000)
✓ Memorandum to All Banks (19 June 2000)
✓ Circular Letter (8 August 2000)
✓ Circular No.269 (2000)

• THERE HAVE BEEN SIGNIFICANT LEGISLATIONS PASSED INTO LAW THAT GOVERN THE PRESENT PHILIPPINE
BANKING SYSTEM.
• 23 May 2000 the passage into law of Republic Act No. 8791 known as the General Banking Law of 2000, institutionalized
a certain mass of banking reforms in the Philippines.
- provides the regulation of the organization and operations of banks, quasi-banks, and trust entities.
- among the more important features of the new law are the following:
1. Greater foreign participation in the system, thus inducing competition. Foreign banks are allowed to acquire up to
100% of the voting stock of an existing bank within seven years after the effectivity of the Act.
2. Three-year moratorium on the establishment of commercial banks to hasten the ongoing consolidation process in
the banking system.
3. Stricter rules governing bank exposure to directors, officers, stockholders, and related interests (DOSRI). The
definition of DOSRI is expanded to include investments of the bank in enterprises owned or controlled by said
DOSRI. The Monetary Board is also given the power to define the term "related interests."
4. Grant of authority to the Monetary Board to adopt internationally accepted standards relating to risk-based capital
adequacy.
5. Application of for proper rule test for a director or officer to hold said position in a bank. In this regard, the Monetary
Borad is empowered to disqualify, remove, or suspend a director or officer for acts or omissions that render him
unfit for the position.
6. Grant of authority to the BSP to regulate electronic banking to ensure adequate protection of banks' depositors and
other clients.

• Republic Act 9160 known as the Anti-Money Laundering Act of 2001 was passed into law on 29 September 2001.
- five salient features of the Anti-Money Laundering Law:
1. First is criminalizing, meaning, that money laundering is now a crime in the Philippines.
2. Second is the establishment of a system of covered transaction reporting RA 9160 identifies the forms of business
institutions or "covered institutions" which are required to submit reports about suspicious or "covered transactions"
to authorized persons.
3. Third is the creation of an Anti-Money Laundering Council that will administer the implementation or RA 9160.

4. Fourth is the amendment of the Bank Secrecy Law which has been blamed for making our country a potential haven
for money laundering. The objective of RA 9160 is to ensure that the country is not used for money laundering.
However, it continues to protect and preserve the integrity and confidentiality of bank accounts.
 5. Fifth is the institution of procedures and arrangements that facilitate cooperation between the Philippines and foreign
governments in the investigation, tracking, and prosecution of money launderers.

• In the commercial banking industry, which will continue to be the core of the banking industry, the country is steadily
moving to a scenario in which there are fewer but more financially powerful main banks that are better able to compete in a
borderless world.
• That logic is the most compelling driving force behind the current wave of bank mergers and acquisitions.
• 19 April 2000 Monetary Board approved the issuance of Circular No. 237, consolidating and clarifying all existing rules
and regulations on mergers and consolidations of banks and other financial institutions (Section Xl 12 of the Manual of
Regulations for Banks and Section 4112 of the Manual of Regulations for Non-Bank Financial Institutions) as well as
improving the incentive package.
- this was done to foster banks, bring about more and better financial services at lower cost, and promote stability and
efficiency in the Philippine banking sector.

• Bank mergers and consolidations are distinguished as follows:

1. Merger is the absorption of one or more corporations by another existing corporation which retains its identity and
takes over the rights, privileges, franchises, and properties, and assumes all the liabilities and obligations of the
absorbed corporation(s) in the same manner as if it had itself incurred such liabilities or obligations. The absorbing
corporation continues its existence while the life or lives of the other corporation(s) is/are terminated.
2. Consolidation is the union of two or more corporations into a single new corporation, called the consolidated
corporation. All the constituent corporations thereby cease to exist as separate entities. The consolidated
corporation shall thereupon and thereafter possess all the liabilities and obligations of each of the constituent
corporations in the same manner as if it had itself incurred such liabilities or obligations.

• Upon the onset of globalization, almost all the industries in the Philippines were deregularized to attract more investments .
• Banking industry was not spared by deregulation.

• Banking deregulation was reinforced through the provisions in the General Banking Law of 2000, as quoted hereunder:

Sec. 11.
- Foreign Stock Holdings. Foreign individuals and non-bank corporations may own or control up to 40% of the voting stock
of a domestic bank. This rule shall apply to Filipinos and domestic non-bank corporations.
✓ percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the individual
stockholders in that bank.
✓ citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of the controlling
stockholders of the corporation, irrespective of the place of incorporation.

Sec. 72.
- Transacting Business in the Philippines. The entry of foreign banks in the Philippines through the establishment of
branches shall be governed by the provisions of the Foreign Banks Liberalization Act.
✓ conduct of offshore banking business in the Philippines shall be governed by the provisions of Presidential Decree
No. 1034 known as the "Offshore Banking System Decree."

Sec. 73.
- Acquisition of Voting Stock in a Domestic Bank. Within seven (7) years from the effectivity of this Act and subject to
guidelines issued pursuant to the Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank to
acquire up to 100% of the voting stock of only one (1) bank organized under the laws of the Republic of the Philippines.
✓ within the same period, the Monetary Board may authorize any fo reign bank, which prior to the effectivity of this Act availed itself
of the privilege to acquire up to 60% of the voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks
Act, to further acquire voting shares of such bank to the extent necessary for it to own 100% of the voting stock thereof.
✓ in the exercise of this authority, the Monetary Board shall adopt measures as maybe necessary to ensure that at all times the
control of 70% of the resources or assets of the entire banking system is held by banks which are at least majority-owned by
Filipinos.
✓ any right, privilege, or incentive granted to a foreign bank under this Section shall be equally enjoyed by and extended under
the same conditions to banks organized under the laws of the Republic of the Philippines (Sec. 2 and 3, RA 7721).

Sec. 74.
- Local Branches of Foreign Banks. In the case of a foreign bank which has more than one (1) branch in' the Philippines, all such
branches shall be treated as one (1) unit for the purpose of this Act, and all references to the Philippine branches of forei gn banks shall
be held to refer to such units.

PERSPECTIVE ON BANK OR BANKING

• BANK
- description of a bank may come from its original functions.
- it is an institution which deals primarily in the receipt of deposits and the loaning out of funds.
- in the historical recounting, it seems that banks were organized mainly to service the need for facilitating credit transactions.
- other accounts point to the fact that it was sought as a place to safekeep funds.
- in Philippine context, the meaning of bank is emphasized in Section 3 of the New General Banking Law to with:
"Banks shall refer to entities engaged in the lending of funds obtained in the form of deposits." With this definition, it is clear
that the creation of deposits implies the other function—that of loaning out funds.

NATURE OF BANKING BUSINESS

• Nature of the banking business may be termed thus — "a bank makes money out of other people's money."
• Viewed in a different light, the bank is said to "trade on the equity."
• To explain this, remember that the banking business involves credit, trust and confidence, futurity and risk are the basic
elements of credit transactions.
• Because people have trust and confidence in a bank, they entrust their money for safekeeping, which is termed as
depositing in banking parlance.
• These deposits in turn are given out as loans by the bank to the public.
• Granting of loans also necessitates the presence of trust and confidence.
• Bank, by giving loans, receives interest, which becomes its income from the business of banking. This does not mean,
however, that the bank takes advantage of the depositor's money for it is one institution that can be a debtor and a creditor
at the same time.
• Such position of the bank could be better understood by the following example:

- EXAMPLE: Supposing Mr. A borrows money amounting to P100,000.00 and the bank approves his application for the
loan. Mr. A could either get the proceeds in cash or simply request the bank to open a current account in his favor. If he
chooses the latter alternative, the bank will make the following entries in its books.

Debit—Loans and Discounts P100, 000.00

Credit—Demand Deposits (Mr. A) P100, 000.00

✓ it will be seen that the bank has created an asset and set up a liability.
✓ it is a debtor to its depositors because it must stand ready at all times to give back their deposits.
✓ it is a creditor to those who borrow money from it because these borrowers a re obligated to repay their loans when due.
✓ it is because of this significant feature, coupled with the trust and confidence of the public, that a bank can do business on
partially owned and partially borrowed money.
✓ technically, deposits are borrowed moneyas far as the bank is concerned. And, because of its power to create money, a bank
can increase its deposits.

PRINCIPLES OF BANKING BUSINESS

° Two (2) basic principles upon which banking business revolves. These principles relate to commercial bank operations
rather than to other types of banks. Furthermore, it is the commercial banking system as a whole that is analyzed rather
than a single bank involved in the process.

1. Principle states that a certain amount deposited will support several times as much in credit.
✓ known as the partial reserve system.
✓ its origin dates back to the time when precious metals like gold were entrusted to goldsmiths for safekeeping.
✓ at first, because the goldsmiths were not yet experienced, they dared not lessen the gold deposits for fear that the
persons who left these for safekeeping might return at once and claim the deposits.
✓ later, however, the goldsmiths learned that the piles of gold became higher and that their owners did not claim them
all at the same time. An idea struck them: "Why not lend a portion of the gold to those in need of money and keep
a certain portion to meet the claims of depositors?"
 ✓ The system was tried and to this day its influence is still felt in the commercial banking system.
✓ its application, too, proved profitable to the money lenders of yesteryears as it does today with our bankers.
✓ for a greater amount could be utilized as loans with only a certain percentage to back up deposits.
✓ as it is implemented today, the central bank imposes a legal reserve on deposit liabilities of all banks.
✓ a higher percentage, however, is required on demand deposits because these are withdrawable at the depositor's
pleasure. So that if the reserve imposed is 20% then the banks could lend 80% of its demand deposits. The
proportion for lending would then be 1:4. If the central bank changes the requirement due to prevailing economic
conditions, say to 10% of the demand deposit liabilities, then the private banks could lend to the extent of 90% or
1:9.
✓ range will conform to the minimum and maximum percentages as contained in the law.
✓ as the requirement is increased, the lending capacity of the banks is decreased; Hence, the imposition of a partial
reserve serves to control the credit operations of the banking system.

2. Principle states that a greater portion of deposits in commercial banks arises out of the proceeds of loans.
✓ due to the fact that a borrower may simply arrange to have the loan proceeds turned into a deposit after his loan
application is duly processed and approved.
✓ this has already been illustrated how the entries are made in this regard.
✓ bank simply creates an asset against a liability. No cash is involved until the borrower-turned-depositor shall draw
checks against the bank. This is the situation where a bank becomes a creditor and debtor at the same time.
✓ the new money, which is in the form of demand deposits, will further increase the bank's lending capacity.
✓ the power of commercial banks in the granting of credit certainly centers on these two main principles. If there is
any abusive use of the legal reserves or the creation of money, it would bring unfavorable influences on the
economic situation.
✓ for while the partial reserve system allows the multiple expansion of credit, the increase in demand deposits by way
of creation of money increases the bank's capacity to lend.
✓ the loans turned into deposits would add up to the money in circulation. So that with other things remaining the
same, the increase in money supply would lead to an increase in the price level.

TYPES OF BANKS
• Several ways of classifying banks or setting apart one type from another.
- such delineations, however, are made due to the problems of supervision and regulation on the part of the state.
- in this case, banks may be classified according to ownership, to structure, to function, and to management.

As to ownership, banks follow the types of a corporation and are classified into privately owned and publicly owned
banks.

a. Privately owned.
❖ bank is said to be privately owned when it is organized and capitalized by pri vate citizens for their profit.
❖ most banks in the country are in this category.
❖ they are what may be called closed corporations since the ownership resides in one family. (However, due to the
nature of the banking business, it is considered a quasi-public corporation.)

b. Publicly owned.
❖ organized by the state and sometimes has a minimum of private ownership.
❖ an example of this is the Land Bank of the Philippines.
❖ charter is granted by the enactment of a special law to govern its operations.
❖ others may be without any private ownership as in the case of the Bangko Sentral ng Pilipinas.

As to the place of incorporation, banks are classified as either domestic or foreign.

a. Domestic.
❖ when it is incorporated under the laws of the Philippines, it is a domestic bank.
❖ it follows that majority of the stocks are owned by Filipinos in conformity with the Philippine Corporation Code.

b. Foreign.
 ❖ when the bank is incorporated under the laws of another country, although the bank might be doing business in the
Philippines, it is a foreign bank.
❖ organization, therefore, follows the pattern of incorporation in the country to which the owners owe allegiance
without prejudice to the supervision and control imposed by Philippine laws on banks and financial institutions, and
others which have anything to do with corporate entities.

As to structure, banks may be classified as stock or non-stock corporations.

a. Stock Corporation.
❖ banks are stock corporations when they sell shares of stock to the general public to raise capital.
❖ all commercial banks in the Philippines are organized as such.
❖ shares sold must have a par value.
❖ purpose of organizing is for profit.

b. Non-stock Corporation.
❖ savings and loan association may either be a stock or a non-stock corporation.
❖ non-stock means that the organization is on a membership basis.
❖ if stocks are sold, they are non-dividend-bearing.
❖ purpose of such organization is for mutual benefits and service rather than for profit.
As to function and line of development, banks may be classified as commercial, fiduciary, and savings. Aside from
these classifications, there are the rural bank, the development bank, the cooperative bank, the investment bank,
the central bank, and others, which specify the primary aims for the organization.

a. Commercial Bank.
❖ one that receives demand deposits and gives out short-term loans.
❖ nowadays, however, the commercial bank does not only concentrate on these functions but also attends to
numerous services. This is possible due to the process of departmentalization.

b. Trust Company.
❖ an institution which deals in fiduciary activities such as administrator of estates, guardian of minors' interest,
executor of last wills and testaments, registrar and transfer agent of stocks and bonds, and similar activities.
❖ this function, which is now done by most banks, was originally a legal function and was handled by a legal officer
or lawyer rather than a banker.

c. Savings Bank.
❖ one which primarily receives for safekeeping funds from persons who have no immediate need for cash and invests
these funds in long-term investments.
❖ should not be mistaken for the savings and loan associations which may either be organized as stock or non-stock
corporations and are largely friendship organizations for mutual benefits.

d. Rural Bank.
❖ organized primarily to cater to the needs of small farmers, small businesses, small cottage industries , and
cooperative associations.
❖ they also receive deposits and loan out funds.
❖ operation and organization of rural banks are governed by Republic Act 720, as amended.

e. Development Bank.
❖ takes care of giving loans to be used for developing the economy and may therefore engage in medium and long-
term lending.
❖ organization and operation of private development banks shall be under the cont rol and supervision of the
Development Bank of the Philippines (formerly Rehabilitation Finance Corporation).

f. Cooperative Bank.
❖ organized to furnish the credit needs of duly registered and operating cooperative associations of different kinds.
❖ Philippine National Cooperative Bank is a good example of this type.
❖ it was only organized to answer the need of cooperative associations to meet the diverse problems connected with
their operations.
g. Investment Bank.
 ❖ one which assists government bodies and newly organized corporations to raise funds for capital through the sale
of stocks and bonds.
❖ handles a business of high risk and therefore necessitates a large amount of capital.
❖ it underwrites the sale of securities and also conducts an economic survey to determine the market for securities.
❖ Private Development Corporation of the Philippines (PDCP) deals in the function attendant to investment
banking.
❖ some government institutions also deal in investment functions.

h. Central Bank.
❖ a bank of banks, as it does not deal directly with the public.
❖ it is usually the supervisory and regulatory agency, which makes all banks "tow the line," so to speak.
❖ Bangko Sentral ng Pilipinas is a good example of this type.
❖ it is rather unique as compared with other central banks since it is purely government-owned and operated.
❖ Bank of England, the Bank of France, the Reichbank of Germany, and the Federal Reserve System of the United
States are also central banks in their respective countries.

As to management, banks may either be unit, chain, group, or branch banks.

a. Unit bank.
❖ it is one where ownership is concentrated on one corporation which does banking business independent of others.
❖ it has one place of business and its own board of directors.
❖ this individualistic trend seems to be apparent.
❖ in the Philippines, the rural bankscould come under this category.
❖ it was envisioned in the law to set up one bank in one locality so that the people could have a bank of their own.
❖ unit bank may, however, associate with a clearing house.

b. Group banking.
❖ when a majority portion of the stocks of two or more banks are held by a holding company, this is considered as
group banking.
❖ members of the group may be unit banks or banks with branches, or both types.
❖ it is mostly for the purposes of control that the stocks are held.
❖ board of directors of each member, however, continues to be responsible to the supervisory or regulatory agencies,
to the depositors and to the stockholders as far as the operations of the particular bank is concerned.
❖ this seems to be favorable for small stockholders whose bank faces the problem of limited capital to attract deposits
and to engage in extensive lending.
❖ element of monopoly led to some criticism on this type.
❖ preventive measures had to be taken to discourage group banking, if not to entirely discard it.

c. Branch banking.
❖ one where there is a head office and two or more branches.
❖ single corporate entity "fans out" its banking services to different strategic locations.
❖ head office and its branches are controlled by one board of directors.
❖ delegation of power is done by the employment of branch managers who are guided by the policies of the head
office.
❖ in some cases, the services engaged in by the branches vary to its extent.
❖ this type, too, is believed to have some element of monopoly. However, it is quite of common knowledge that in the
Philippines this seems to be the trend today as we see bank branches of the different banking institutions in our
towns, provinces, districts, department stores, and other places.

d. Chain banking.
❖ when one or more persons control the activities of banks, it is known as chain banking.
❖ it has not gained wide adherents due to the difficulties in operating the same on an economical basis and because
of its instability or lack of continuance in existence.

ECONOMIC SIGNIFICANCE OF BANKS

• Banks came out of the need to facilitate trade transactions, particularly credit transactions.
• Bank also facilitates the dealings between debtors and creditors because it acts as an intermediary in the flow of credit
funds.
• It allows others the use of otherwise idle funds of the community in producti ve activities.
• For the persons depositing money are usually those who have no immediate need for the funds and the bank, in turn,
lends these funds to those who are momentarily in need of them.

• In allowing the flow of credit funds, the bank becomes significant in the economy because they can create money out of
loan proceeds.
• If a bank abuses this power, it will create havoc on the economy.
• If the bank exercises wise judgement in this particular aspect, it would contribute tremendously to the economic well-being
along the commercial, industrial, and even agricultural endeavors.
• Banks, therefore, may or may not contribute to the development of the country.
• By its function of giving expert advice to businessmen, the bank may contribute to the success (or failure) of the country
as a whole.
• Since banks exercise prudence in giving such advice, it usually turns out that they contribute to wise decisions and proper
incentives in business and trade.

• Without banks, foreign trade would stagnate or perhaps not flow smoothly.
• Major link between international buyers and sellers are the banks. They influence and allow the continuous and successful
flow of foreign trade. This is more evident when the banks doing business in the international network are world renowned.
• International trade necessitates the letters of credit and acceptances which banks handle with the greatest care due to
their wealth of experience in dealings on credit.

Many other reasons may be advanced to underscore the economic significance of banks but those mentioned
may well sum up the most important.

WHY THE STATE SUPERVISES BANKS

• State does not only supervise banks, but with the advent of central banking, it also controls the banks' operations.
• Banks exert an important influence in the economic setup, not to mention the maintenance of the trust and confidence
upon which the practice of banking is ingrained.
• Following are some of the reasons why the state supervises and controls banks:

1. Banks are entrusted with other people's money.

❖ their mismanagement or malfeasance in the duties of the board of directors will result to banking failure.
❖ people's trust will be lost, creating a long negative influence in the community. Thus, the state must see to it that
people's trust in banks must not be destroyed or maligned.

2. State wants to assure that the banks will perform their functions in the best interest of their clients through the
honest and efficient conduct of their functions.
❖ state must be vigilant in order to forestall any misconduct or inefficient banking methods.

3. Banks may either abuse their power or use them prudently.

❖ since in the modern economic affairs, banks tend to direct the course of progress or otherwise, the state stands
guard in order that banks will exercise their power with the necessary prudence.
❖ this will prevent the banks to create any untoward incident that could bring disaster to the economy.

4. Banks, furthermore, are quasi-public corporations and as in all other corporations of this calling, the state must
exert its restraining influence to safeguard the welfare of its constituents.
❖ in the granting of a charter to a corporate entity, the state is one of the parties whose duty is to protect the interest
of the citizens.

THE BANK LIBERALIZATION

• Philippine commercial banking sector has been opened to competition, both local and overseas, largely through a series
of government-initiated liberalization measures.
• In the post-war era (1940s-1960s), the sector catered largely to the domestic market and had limited role in the
foreign exchange market.
• In the 1970s, government allowed foreign financial institutions to set up offshore banking units while the commercial banks
were authorized to accept foreign currency deposits.
• In the early 1980s, the Anti-usury law became obsolete with the deregulation of interest rates.
• On the recommendation of the International Monetary Fund (IMF) the interest rate deregulation was accompanied by
programs allowing big commercial banks to go “universal”, that is, to undertake traditional banking functions (e.g., accept
deposits, issue letters of credit, engage in foreign exchange transactions, etc.) alongside investment banking.
• Traditional “differentiation” of functions among banks (rural, savings, thrift, development and commercial) was removed,
with the commercial and universal banks allowed to undertake any or all of these functions.

• Universal bank is also allowed to hold equity in a non-financial institution, or in virtually other area of the economy (Ofreneo,
1996).
• Interest rate deregulation and universal banking policy coincided with the difficult decade of the 1980s.
• 1980-83 Philippine economy was in recession.
• 1983-85 recession became a full-blown depression, with the economy registering negative GDP growth (Ofreneo, 1996).
• Banking sector was badly hit by the recession-depression, with the Philippines’ banks unable to issue letters of credit on
behalf of the country’s importers-exporters.
• Unable to service its debt, the government was forced to negotiate for a debt service moratorium.

• Economy normalized only in the second half of the 1980s, after the 1986 People Power Revolt installed Corazon C.
Aquino as the new President.
• Corazon Aquino Administration also tried to strengthen the financial system.

• Huge liabilities accumulated by the two government banks.

✓ Philippine National Bank (PNB)
✓ Development Bank (DBP)
were transferred to the government and became part of the bigger national debt.
• PNB, then the country’s premier bank, was put on the privatization auction block.
• 1994 Philippines passed Republic Act (RA) 7721, which liberalized the entry and scope of operations of foreign banks.
• As a backgrounder, no foreign bank had been allowed entry under the 1948 General Banking Act, except the four foreign
banks licensed during the Spanish and American colonial periods, namely:
✓ Hong Kong Shanghai Bank
✓ Citibank
✓ Standard Chartered Bank
✓ Bank of America

• RA 7721 allowed the entry of foreign banks through any of the three modes:

1. Acquisition, purchase or ownership of up to 60% of the voting stock of an existing domestic bank, or
2. Investment in up to 60% of the voting stock of a new banking subsidiary incorporated under the laws of the
Philippines, or
3. Through the establishment of a Philippine branch with full banking authority.

• Ten foreign banks were granted authority to operate in the country within five years from the date of the Act’s entry into
effect.
• Philippines happened to be bullish in 1994.
- country registered high GDP growth in 1994-97 which also saw the rapid liberalization of the banking and other sectors of
the economy.
- growth was rudely interrupted by the 1997-98 Asian financial contagion that originated from Thailand.
- compared to the 1980-85 financial crisis, the Philippine financial sector survived this new crisis without any major bank
closures, contrary to what happened in Indonesia and Thailand.

• Twenty years after RA 7721 in 2014 government further liberalized the entry of foreign banks with the issuance of RA
10641.
- Under the new law, foreign banks are given equal treatment to that accorded domestic banks under the new law, as they
“shall perform the same functions, enjoy the same privileges, and be subject to the same limitations imposed upon a
Philippine bank of the same category.”
- Domestic banks under the new law also enjoy “any right, privilege or incentive granted to foreign banks or their subsidiaries
or affiliates.”
• RA 10641 allows foreign banks to operate within the Philippine banking system by:

1. Acquiring, purchasing, or owning up to 100% of the voting stock of an existing bank,

2. By investing in up to 100% of the voting stock of a new banking subsidiary incorporated under Philippine laws, or
3. By establishing branches with full banking authority.

But foreign banks can operate in the Philippines only through any one of these three modes of entry.
Foreign banks can now operate in the country either as branch or 100% owned foreign subsidiary.
Increase in the allowed foreign ownership, RA 10641 also amends the capital requirement for foreign branches.
The law requires that the minimum capital amount should not be less than the minimum capital required for
domestic banks of the same category.
Foreign bank branch is now allowed to open up to five sub-branches.

• New law includes a new provision on participation in foreclosure proceedings of a foreign bank.
• Foreign banks that are authorized to do banking business in the Philippines through any of the three modes of entry shall
be allowed to bid and take part in foreclosure sales of real property mortgaged to them, as well as to avail of enforcement
and other proceedings, and accordingly take possession of the mortgaged property, for a period not exceeding five years
from actual possession.
• However, title to the property shall not be transferred to such foreign bank. If the said bank is the winning bidder, it shall,
during the said 5-year period, transfer its rights to a qualified Philippine national, without prejudice to a borrower’s rights
under applicable laws.
• Should the bank fail to transfer such property within the 5-year period, it shall be penalized one half of 1% per annum of
the price at which the property was foreclosed until it is able to transfer the property to a qualified Philippine national.
• Proponents of the law justify the opening of the banking industry to more established foreign banks on various reasons,
but collectively the economic benefits it will bring and the strengthening of the financial system in the country.
• Regulators also see this as a vehicle for foreign direct investments in the country.
• Update reports (2019) discloses that more foreign banks are looking at establishing their presence in the Philippines on
the back of the country’s sound macroeconomic environment and stable investment climate.
• Three banks from South Korea, Indonesia, and Hong Kong have signified their interest in putting up branches in t he
Philippines.
• BSP has so far allowed 12 foreign banks, including the world’s largest bank, to open branches in the Philippines. These
include:
✓ Taiwan’s Hua Nan Commercial Bank Ltd.
✓ Cathay United Bank.
✓ Yuanta Bank.
✓ First Commercial Bank.
✓ Chang Hwa Bank Commercial Bank Ltd.
✓ Korea’s Shinhan Bank.
✓ Industrial Bank of Korea.
✓ Woori Bank.
✓ Sumitomo Mitsui of Japan.
✓ United Overseas Bank Ltd. of Singapore.
✓ CIMB Bank of Malaysia.
✓ Beijing-based Industrial and Commercial Bank of China (ICBC).
• BSP has allowed 13 foreign banks to establish representative or liaison offices in the country. Foreign banks that opened
representative offices include:
✓ State Bank of India.
✓ Ogaki Kyoritsu Bank Ltd.
✓ Wells Fargo Bank.
✓ Korea Development Bank.
✓ Bank of Singapore Ltd.
✓ DBS Bank Ltd.
✓ Japan Bank for International Cooperation.
✓ Rothschild (Singapore) Ltd.
✓ Bank of New York Mellon.
✓ Korea Eximbank.
 ✓ UBS AG.
✓ Zurich-based Credit Suisse.
✓ Bank of Taiwan.
• It is interesting to observe the effects of this full liberalization of the banking industry as some sectors have also voiced
their concerns on its possible adverse impact.
• We just hope that we gain more with the influx of bigger players.

THE EFFECT OF FOREIGN BANK ENTRY IN THE PHILIPPINES

1. Advantages
a. Increased Competition. Small businesses can avail to more credits and the cost of capital would lessen. This will
also push banks to become more innovative to stay on top of the banking competition.
b. Lower operating expenses due to increased efficiency. Competition among banks may lead to increased
operating efficiency that may lead to reduced operating costs and higher service quality for the customers.
c. Lower interest rates offered to the public. Stronger competition among bank results in significantly lower interest
rates for most loan market products. As more banks offer credit, local and foreign borrowers will be capable of
securing small or large business loan products at desirable interest rates and terms.
d. Lower Interest related income. Foreign and local banks may offer income-based repayment strategies designed
to reduce monthly interest rates and payments to make it easier for the low income earners to manage their loans.
e. Banks with High political influence will tend to close due to competition. The presence of foreign banks can
increase the costs of bribery to dishonest government officials resulting in more transparency in governm ent
projects tendering.
f. Non-lending activities like cost optimization and seeking for greater efficiency would keep managers busy .
Busy managers shall devote their time in improving efficiency, reducing costs, and increasing profitability of the
bank to keep up with other banks.

2. Disadvantages
a. Accounting profits would decline . Accounting profit refers to sales revenue minus all the costs the bank sustained
in the conduct of its businesses except the cost of equity capital. Higher competition in the banking market is likely
to lead to lower prices and the possibility of lower super-normal profits.

3. Risks
a. Profit volatility. Volatility for profit in the banking sector refers to the amount of uncertainty or risk about the size
of changes in the bank’s security’s value. The higher the volatility, the greater the risk of dramatic change in the
price of security. The lower the volatility, the smaller the risk of dramatic fluctuation in the price of security. In addition,
lower interest rates may also squeeze up the bank’s capital. With stiffer competition, come lesser profits.
b. Encourages underwriting of riskier loans. Banks that are struggling to stay afloat the competition may resort to
lax restrictions on credit. This will eventually encourage other banks to issue more high-risk loans with flexible rates
and lower underwriting standards. Many borrowers may begin defaulting as they became unable to pay interest
rates. These borrowers may also have trouble refinancing. Banks may lose huge amounts of capital, and many
borrowers may lose their securities.

GOVERNMENT BANKING FINANCIAL INSTITUTIONS

(Banks in the Philippines)

• Bangko Sentral ng Pilipinas

• Universal Banks

- Asia United Bank

- BDO
- BPI

- Chinabank

- EastWest bank

- Metrobank

- PNB

- Philtrust

- RCBC

- Security Bank

- Union Bank
• Government Banks

- Al-Amanah Islamic Investment Bank of the Philippines

- DBP

- Landbank

- OFB

- UCPB
• Commercial Banks

- Bank of Commerce

- Chinatrust

- Citibank

- HSBC

- Maybank

- PBCom

- RBank

- Standard Chartered Bank

- Veterans Bank
• Thrift Banks

- BPI Direct Savings Bank

- China Bank Savings

- Citystate
- PBB

- PSBank

- Queenbank

- Security Bank Savings

• Other Banks

- Cooperative Banks

- Rural Banks
• Defunct

- Allied Bank (merged with PNB)

- Banco Filipino

- Equitable PCI Bank (merged with BDO)

- International Exchange Bank (merged with Unionbank)

- Plantersbank (merged with Chinabank)

LAND BANK OF THE PHILIPPINES

- The Land Bank of the Philippines is a government financial institution that strikes a balance in fulfilling its social
mandate of promoting countryside development while remaining financially viable.This dual function makes
LANDBANK unique.

- The profits derived from its commercial banking operations are used to finance the Bank's developmental
programs and initiatives.

- Landbank is by far the largest formal credit institution in the rural areas.
VISION

By 2023, LANDBANK shall be the leading universal bank that promotes inclusive growth, especially in the
unbanked and underserved areas, through the delivery of innovative financial products and services powered
by digital banking platforms.

MISSION

To Our Clients and Publics:

We provide accessible and best technology solutions to deliver timely and responsive financial and support
services to meet the needs of our clients, especially Small Farmers and Fishers (SFFs), Micro, Small and
Medium Enterprises (MSMEs), Countryside Financial Institutions (CFIs), Local Government Units (LGUs) and
government agencies, while promoting sustainable development anchored on good governance.

To Our Employees

We are the employer of choice. We develop and nurture talents who exemplify the highest standards of ethics,
social responsibility and service excellence. We support diversity and cultivate a healthy work environment with
equal opportunity for professional growth and advancement.

LAND BANK OF THE PHILIPPINES

- Filipino: Bangko sa Lupa ng Pilipinas.

- Spanish: Banco Hipotecario de Filipinas.

- Stylized as LANDBANK or also known by its initials, LBP.

- is a universal bank in the Philippines owned by the Philippine government with a special focus on serving the
needs of farmers and fishermen.

- While it provides the services of a universal bank, it is officially classified as a "specialized government bank"
with a universal banking license.

- Landbank is the second largest bank in the Philippines in terms of assets and is the largest government-owned
bank.

- It is also one of the biggest government owned and controlled corporations in the Philippines.

- Unlike most Philippine banks, Landbank has an extensive rural branch network with 409 Branches and
Extension Offices, 46 Lending Centers and 2,188 ATMs (as of February 2020).

- It services many rural sector clients in areas where banking is either limited to rural banks or is non-existent.
- 2015 it planned to merge with DBP but it did not push through.

- February 4, 2016 President Benigno Aquino III approved the Executive Order #198 on the merger between
Land Bank and the DBP with the former as the surviving entity.

LANDBANK OF THE PHILIPPINES HISTORY

- August 8, 1963 Landbank was established as part of the Agricultural Land Reform Code as part of a program
of land reform in the Philippines.

- It was to help with the purchase of agricultural estates for division and resale to small landholders and the
purchase of land by the agricultural lessee.
- 1965 Landbank's by-laws were approved and its first board of trustees was formed, with the Secretary of
Finance as Chairman.
- October 21, 1972 Presidential Decree No. 27 signed by President Ferdinand Marcos, emancipated all tenant
farmers working on private agricultural lands devoted to rice and corn, whether working on a landed estate or
not.

- The system was implemented through a system of sharecropping or lease-tenancy.

- Landbank was tasked to collect 15 year land amortizations from beneficiaries at the cost of the value of the
land plus six percent interest per annum.
- 1973 Landbank was in financial distress.It lacked the resources and the capital needed to implement the land
reform programs and lacked the structure to implement the programs efficiently.
- July 21 Marcos signed Presidential Decree No. 251 which revitalized the bank. The decree granted Landbank
a universal banking license (the first bank in the Philippines to be issued such a license) with a social mission to
spur countryside development.

- The decree expanded Landbank's powers to include lending for agricultural, industrial, homebuilding and home-
financing projects and other productive enterprises, as well as lending to farmers' cooperatives and associations
to facilitate production, marketing of crops and acquisition of essential commodities.

- Landbank was also required by the decree to provide timely and adequate support in all phases involved in the
execution of agrarian reform and also increased its authorized capital to 3 billion pesos.

- It also became exempted from all national, provincial, city and municipal taxes and assessments.
- 1977 Landbank was reorganized when it was divided into three sectors to better assess the needs of its
customers.

- It was divided into Agrarian, Banking and Operations sectors to strengthen operations and ensure long term
viability.

- 1982 the Agricultural Credit Administration (ACA), established under the same law as Landbank, was abolished
and all its assets and functions transferred to Landbank.

- ACA's function was to extend credit to small farmers.

- Also in this year (1982) Union Bank of the Philippines (UnionBank) was formed, with Landbank having a 40-
percent stake in the government-owned commercial bank.
- 1988 Landbank became the financial intermediary for the Comprehensive Agrarian Reform Program (CARP).

- It was also in that year (1988) that UnionBank started a gradual privatization.

- The Aboitiz Group of Companies acquired Landbank's 40% share of UnionBank then which it continues to own.

- December 1991 LANDBANK also became the third member of Expressnet, an interbank network but now a
BancNet member.
- February 23, 1995 Landbank's charter was once again amended. Its authorized capital was increased to nine
billion pesos and it became an official government depository. The number of members of the board of trustees
was also increased to nine.
- August 25, 1998 Landbank's authorized capital was once again increased to 25 billion pesos, and it then
increased to 200 billion pesos, after the DBP-Landbank merger in 2016.
MAJOR ROLES OF LANDBANK
• An implementing agency of CARP involved in land evaluation, compensation to owners of private agricultural
lands, and collection of amortizations from CARP farmer-beneficiaries.

• Provision of credit assistance to small farmers and fisherfolk and ARBs.

• An official depository of government funds.

• A government bank with a social mandate to spur countryside development.

GUIDING PRINCIPLES OF LANDBANK

• Catalyst of countryside development and poverty alleviation.
• Commitment towards the development of the cooperative system.

• Self-sustainability through cross-subsidy operations (commercial banking profits supporting agrarian

operations).

• Self-reliant government institution with no budgetary support.

• Commitment towards environmental protections.

LANDBANK HAS THE FOLLOWING SUBSIDIARIES AND AFFILIATES

• LBP Leasing Corporation
• LBP Insurance Brokerage

• LBP Resources and Development Corporation (former LB (Landbank) Realty Development Corporation)

• Masaganang Sakahan, Inc.

• LBP Countryside Development Foundation, Inc.

• Overseas Filipino Bank

CURRENT OPERATIONS

- Landbank competes against the major banks such as Metrobank, Bank of the Philippine Islands (BPI), Banco
de Oro and Philippine National Bank (PNB).

- In rural areas, it either competes against or complements rural banks. On the other end of the spectrum,
Landbank takes on a dual role with the Development Bank of the Philippines, another government-owned bank.
It either competes against or works with DBP, depending on the situation.

MILESTONES IN CORPORATE EXISTENCE (Landbank)

1. REPUBLIC ACT NO. 3844 (Agricultural Land Reform Code)

• Created the Land Bank of the Philippines (LBP) to finance the acquisition and distribution of agricultural estates
for division and resale to small landholders as well as the purchase of the landholding by the agricultural lesses;

• Authorized capitalization of 1.5 billion Php. Initial capital of 200 million Php;

• Tax exempt on all operations, holdings, equipment, property, income and earnings;

• Exempted from cash or stock dividend payments to the National Government;

• Agricultural Credit Administration (ACA) responsible for extending credit assistance to farmers cooperatives
and directly to small farmers.
2. ADOPTION OF BY-LAWS AND CREATION OF BOARD OF TRUSTEES

• Adopted the by-laws, established the first organizational chart and manual of operations in 1965;

• Formed the Board of Trustees with the Secretary of Finance as chairman in 1966.

3. PRESIDENTIAL DECREE 27 (TENANT EMANCIPATION ACT)

• Emancipation of tenant-farmers of private agricultural lands devoted to rice and corn under a system of share-
crop or lease-tenancy. whether classified as landed estate or not;

• Value of land transferred to tenant-farmers at 2 1/2 times the average;

• Harvest of 3 normal crop years immediately preceding the promulgation of PD 27;

• LBP to collect 15-year land amortizations from beneficiaries for the cost of the land plus 6% interest per annum.

4. PRESIDENTIAL DECREE 251 (REVITALIZING LANDBANK)

• Because LBP was deficient and inadequate both in capitalization and in organization structure to meet the
implementation requirements of agrarian reform, the Bank was revitalized;

• Granted universal or expanded commercial banking powers to LBP and established LBP as the universal bank
with a social mission of spurring countryside development;

• Expanded LBP's powers to include lending to agricultural, industrial, home-building or home-financing projects
and other productive enterprises;

• Empowered LBP to grant loans to farmers cooperatives/associations to facilitate production, marketing of crops
and acquisition of essential commodities;

• LBP mandated to provide timely and adequate support in all phases involved in the execution of agrarian reform;

• Exempted from all national, provincial, municipal & city taxes and assessments.

5. REORGANIZATION - 1977
• LBP formed three major sectors - Agrarian, Banking and Operations to strengthen operations and ensure long-
term viability.

6. EXECUTIVE ORDER 816 (TRANSFER OF ACA TO LBP)

• To adopt an integrated approach in the provision of financial assistance to AR farmer-beneficiaries a single

institution is preferred;

• ACA was abolished and its functions (loans to small farmers) were transferred to LBP.

7. EXECUTIVE ORDER 229 (CARL)

• Created the Presidential Agrarian Reform Council (PARC) as the highest policy-making and coordinating body
of the Comprehensive Agrarian Reform Program (CARP) to ensure timely and effective delivery of the necessary
support services;

• Established the Agrarian Reform Fund (ARF) with an interim amount of 50 Php billion to cover the financing
requirements of CARP with appropriations coming from the proceeds of the Asset Privatization Trust and the
Presidential Commission on Good Government;

• FBs to pay for lands acquired and redistributed by the government in 30 squal annual amortizations at 6% p.a.
with the first payment due one year after resale (annual amortization should not exceed 10% of the land's annual
value of gross production);

• LBP to provide assistance to landowners.

8. REPUBLIC ACT 6657 (CARL) - 10 JUNE 1988

• Broadened the coverage of agrarian reform to include all public and private agricultural lands including other
lands of the public domain suitable for agriculturs;

• Payment to landowners at 25% to 35% cash and the balance in 10-year Agrarian Reform bonds with a yield of
91-day T-bills;

• Established LBP as the financial intermediary of the CARP.

9. EXECUTIVE ORDER 405 (CARP LAND VALUATION)

• Transferred the primary responsibility of determining land valuation and compensation forball lands covered
under CARP from the DAR to the LBP;

• Accelerated and streamlined certain procedures in land valuation and compensation;

• LBP created regional Land Valuation and Landowners Compensation Offices (LVOs) to carry out land valuation
and compensation.

10. REPUBLIC ACT 7907 (AMENDED LBP CHARTER)

• Increased authorized capitalization to 9 billion Php;

• Established LBP as an official government depository;

• Increased the members of the Board of Directors to nine (9).

11. EXECUTIVE ORDER 267 (CARL)

• National Government to issue Agrarian Reform (AR) bonds to be used by LBP for land transfer payments;

• Segregation of the accounts of CARP-related transactions from the books of LBP;

• CARP accounts and AR bonds were previously part of LBP's books and adversely affected LBP's financial
position (leverage and capital adequacy ratios).

12. INCREASE OF AUTHORIZED CAPITAL

• Authorized capitalization increased to 25 billion Php by the Department of Finance and the President of the
Philippines.

FIVE SUSTAINABILITY CORNERSTONES OF LANDBANK

1. ENTERPRISE DEVELOPMENT

- Activities that contribute to the improvement of economic performance, market presence and indirect economic
impact.

• Funding the Priority Sectors

✓ Small farmers and fisherfolk (SFF)

✓ Agriculture related products

✓ Agri-infrastructure projects of LGU's

✓ Environment related projects

✓ Schools and hospitals

✓ Socialized housing

✓ Livelihood projects of salaried individuals

✓ Microenterprises, small and medium enterprises (MSME's)

Basis of Lending to LGUs The Local Government Code of 1991 (RA 7160) provides that:

" any local government unit (LGU) may avail of credit facilities to finance local infrastructure and other socio-
economic development projects in accordance with the approved local development plan and public investment
program of the LGU."
Lending initiatives for Cooperatives and Microfinance Institutions

✓ Food Supply Chain Program

( Aims to increase farmers' income by way of providing necessary financial and technical support along the
value-added chain of a commodity or industry.)

✓ Development Advocacy Program

✓ Technology Promotion Center Program

✓ Rice Productivity Program

(Supports the government's efforts to increase rice production and achieve food self-sufficiency by providing
credit to conduits (Countryside Financial Institutions or CFls, irrigators associations and cooperatives) and
credit enhancements such as market contracts, crop insurance and guarantees.)

• Strengthening Countryside Financial Institutions

- LANDBANK launched programs to help its conduit partners, the countryside financial institutions or CFls (rural
banks, thrift banks and cooperative banks) expand their agri-lending operations in the countryside.

✓ LANDBANK Housing Opportunities Made Easy (H.O.M.E. Program)

✓ Easy Access to Shelter You (EASY) Home Loan

✓ End Buyers-Tie Program

✓ Bahay para sa Bagong Bayani (3B)

2. COMMUNITY DEVELOPMENT

- Programs and projects that directly and indirectly contribute and add social value to the community.

✓ Training Programs for Cooperatives and Microfinance Institutions

(Various training programs for small farmers and fisherfolk cooperatives under cost-sharing arrangements.)
✓ Scholarship Programs for Cooperatives and Agrarian Reform Beneficiaries
(LANDBANK's Gawad Patnubay supports the secondary education of children in agrarian reform
communities.)
✓ Scholarship Incentive Program for Agricultural Growth (SIPAG)
(Aims to develop the capacity and competence of cooperative leaders, managers, and middle-level
management staff on management of cooperatives through a 24-unit course in Cooperative Management.)
✓ Tulong Aral High School Scholarship Program
(Underprivileged children were granted secondary education scholarship to help them achieve their dream
of a brighter future through good education. Funds are sourced from one hour's worth of wages of LANDBANK
employess contributed annually.)
✓ Integrated Community Development Program (ICDP)
(Establishment of community-based projects addressing issues of poverty such as livelihood, health,
education, environment protection, in partnership with cooperatives and MFIs.)
3. ENVIRONMENTAL PROTECTION ANDMANAGEMENT

- Activities that contribute to the proper management of materials and natural resources, pollution prevention,
and climate change mitigation and adaptation.

✓ Renewable Energy for Wiser and Accelerated Resources Development (REWARD)

(The Bank's financing assistance in response to the government's call to promote the development of
renewable energy and bio fuels projects in the country.)
✓ Assistance to Indigenous Peoples (IPs) for Environment Protection and Eco-Biodiversity
(Focuses on organizing and providing alternative livelihood to indigenous peoples' communities to prevent
encroachment and degradation of forest resources.)
✓ LANDBANK Calamity Rehabilitation Support (CARES) Program
(Available to various existing and new customers who have been affected by the calamity in areas that were
declared under the state of calamity by the Office of the President and the Local Government Units.)
✓ Yolanda Reconstruction Program
(Available to areas affected by Typhoon Yolanda.)
° Eighty Five (85) LGUs submitted 155 project proposals
° Financial Mix of 80% grant and 20% equity
° YRP Consultant is currently evaluating these project proposals

4. CUSTOMER SERVICE

- Programs and activities that enhance the Bank's products and servic es, as well as systems that interface with
its internal and external customers, and other stakeholders.

✓ Pantawid Pamilyang Pilipino Program (4Ps)

(To facilitate the distribution of cash grants to eligible 4Ps beneficiaries, the DSWD makes use of the
LANDBANK Cash Card facility and Over-the-counter payment through the various LANDBANK branches.)
✓ OFW Cash Card
(In response to the need of our overseas Filipino workers (OFWs) for more efficient and cheaper remittance
services, LANDBANK, in partnership with SMART Communications, Inc. developed the OFW Cash Card.)

5. EMPLOYEE DEVELOPMENT

- Activities and programs that promote good labor practices, conducive work environment, professionalism and
volunteerism.

✓ Rewarding Professional Excellence

(The average length of service at LANDBANK is 14 years, the current trend in the banking industry of seven
years. To reinforce this commitment, the Bank annually confers Loyalty Cash Award, Length of Service Award,
Professional Award, and Perfect Attendance Award as well as Anniversary Bonus and Longevity Pay.)
✓ Continued Development of Employee Capabilities and Skill Formal training programs
(Aimed at expanding our employees' competency based on the functional or technical, leadership and
management, and behavioural dimensions, were complemented with non-formal learning methods such as
brown bag sessions, short courses, interest-based courses, among others.)

LANDBANK CASH MANAGEMENT SOLUTIONS

1. INSTITUTIONAL INTERNET BANKING SOLUTIONS

- These provide the online banking platform for clients to manage their financial needs anytime, anywhere.

• weAccess Internet Banking Facility

(Serves as the avenue for clients to easily manage all their banking needs and optimize financial interaction
with LANDBANK online.)
• Institutional Payroll Services
(Allows clients to upload a payroll file and credit the payroll accounts of their employees using the Financial
Data Entry System (FINDES).
• wePayAccess
(Provides a web-based collection facility developed specifically for LANDBANK government and private
institutional clients, intending to pay their bills to LANDBANK's accredited merchants.)

2. COLLECTION SOLUTIONS

• Branch Online Collections (OnColl Facility)

(Facilitates over-the-counter collection of receivables or payments made by customers or members in
LANDBANK branches nationwide. Proceeds are credited to the LANDBANK account opened and maintained
in the preferred LANDBANK Branch.)
• Deposit Pick-up Service
(Provides the convenient way of depositing the voluminous cash / check collections via LANDBANK's deposit
pick-up service.)
• Point of Sale Terminal (POS)
(Facilitates the verification and processing of payments for the purchase of goods and services, using either
international/ local debitor cash cards.)
• Debit Memo Validation Facility
(Provides the clients a convenient way of collecting payments from their clients via direct debit from individual
LANDBANK accounts of their clients subject to the following:)_
° OPLOM Minimum ADB
° Transaction fee of P10.00 - 25.00 per successful debit
• Bills Payment Facility
(Serves as a collection facility for accredited merchants where payments made through the following
LANDBANK payment channels shall be directly credited to their LANDBANK accounts:)
° LBP Phone Access(LPA)
° Internet Banking channels - weAccess, wePayAccess and Access

3. DISBURSEMENT SOLUTIONS

• Auto-Credit Facility (weAccess)

(Enhances the payment process in the settlement of recurring expenses/billing Clients can simply pay
their obligations real-time by crediting their obligor/suppliers' enrolled LANDBANK accounts using the internet
banking channel.)
• Easy Check Plus (Corporate Check Printing System)
(Provides clients the ease of printing their voluminous check disbursements by installing a stand-alone
Corporate Check Printing System in their PCs.)
• LANDBANK Visa Corporate Credit Card
(Serves as an institutional incentive for selected officers/ personnel with arranged transaction-level limits per
individual. This allows the company to keep track of all business-related spending.)

EASY CHECK PLUS (CORPORATE CHECK PRINTING SYSTEM) FEATURES

• Customizable
 (Coroporate Logo can be incorporated in the check design.)
• Direct Printing
(Check details: Payee Name, Date, Authorized Signatories and Amount in Words and Figures.)
• Check Database
(With database to monitor issued checks and its status, i.e. outstanding, negotiated or stale, for ease of
reconciliation.)
• Inter-operable
(Can interface with your existing disbursement system.)
• Multi-tiered Access
(Three (2) authorized users: Administrator, Authorizer and Maker, each with own 6-9 alphanumeric character
ID and password.)

4. PAYROLL SOLUTIONS

• Payroll Delivery Service

(Provides a timely and secure delivery of the client's total payroll to its place of business via an armored car
or an authorized bank vehicle.)
• Payroll Service through LANDBANK VISA Debit / ATM / Cash Card
(Release of employees' payroll by sither debiting the clients' account or through the issuance of check
payable to LANDBANK for the total payroll amount and crediting the individual ATM accounts of their
employees on payroll date.)

DEVELOPMENT BANK OF THE PHILIPPINES

- is a state-owned development bank, was officially created on June 14, 1958 headquartered in Makati City,
Philippines.
- December 2018 DBP have 137 branches. In the Philippines development financing institutions play a pivotal
role in the quest for sustainable growth and development.

- As the country’s pre-eminent development financial institution, DBP has taken upon itself the strategic task of
influencing and accelerating sustainable economic growth, through the provision of resources, for the continued
well-being of the Filipino people.
- The DBP under its new charter, is classified as a development bank and may perform all other functions of a
thrift bank. Its primary objective is to provide banking services principally to cater to the medium and long-term
needs of agricultural and industrial enterprises with emphasis on small and medium-scale industries.

MISSION STATEMENT

- To support infrastructure development, responsible entrepreneurship, efficient social services, and the
protection of the environment.

- To work for raising the level of competitiveness of the economy for sustainable growth.

- To promote and maintain the highest standards of good governance.

CORPORATE VISION

- Vision 2022
By 2022, a one-trillion Bank capable of supporting and spearheading development in half of the Philippine
countryside.
- Vision 2040
By 2040, DBP will be a world-class infrastructure and development financial institution, and proven catalyst for
a progressive and prosperous Philippines.

CORE VALUES

- INTEGRITY
• Honesty
• Truthfulness
• Transparency
- EXCELLENCE
• Competence
• Dedication to Work
• Professionalism
- TEAMWORK
• Harmony
• Cooperation
• Synergy
- SERVICE TO OTHERS
• Customer-Oriented
- LOVE FOR THE FILIPINO
• Love of country and its people everywhere

SUBSIDIARIES AND AFFILIATES

- LGU GUARANTEE CORPORATION (LGUGC)

• Unit 2810 28th Floor, Antel Corporate Center, 121 Valero St. Salcedo Village, Makati City.
- DBP DAIWA CAPITAL MARKETS PHILS., INC.
• 18th Floor, Citibank Tower, 8741 Paseo De Roxas, Salcedo Village, Makati City.
- DBP SERVICE CORPORATION (DBPSC)
• 2nd Floor, Executive Building Center, Sen. Gil Puyat Avenue corner Makati Avenue, Makati City.
- DBP INSURANCE BROKERAGE, INC. (DIBI)
• Ground Floor, DBP bldg., Sen. Gil Puyat Avenue corner Makati Avenue, Makati City.
- DBP Data Center, Inc.
• 9th Floor, DBP Head Office Building, Sen. Gil Puyat Avenue corner Makati Avenue, Makati City.
Tel. No.: 848-9511 local 2913
Website: www.dci.ph
- DBP Management Corporation
• 8th Floor, DBP Head Office Building, Sen. Gil Puyat Avenue corner Makati Avenue, Makati City.
Trunkline: 818-9511 local 3805/3800
Direct Line: 815-1612
Fax No. 893-5595
- DBP Leasing Corporation
• Ground Floor, DBP Head Office Building, Sen. Gil Puyat Avenue corner Makati Avenue, Makati City.
Tel. No.: 894-0265
Fax No.: 812-1330
Website: www.dbp-leasing.gov.ph
- Al Amanah Islamic Investment Bank of the Philippines
• Ground Floor, DBP Head Office Building, Sen. Gil Puyat Avenue corner Makati Avenue, Makati City.
Trunkline: 818-9511 local 3105
Direct Line: 815-1588
E-mail: info@amanahbank.gov.ph
Website: www.al-amanahbank.com

EXECUTIVE ORDER NO. 81 PROVIDING FOR THE 1986 REVISED CHARTER OF THE DEVELOPMENT
BANK OF THE PHILIPPINES.

• Former President Corazon Aquino issued E.O. No. 81 which provided for the 1986 Revised Charter that called
for a clean up of DBP’s books, staff reorganization and infusion of initial operating budget. The rehabilitation
program restored its financial viability and DBP resumed lending operations.

Republic Act No. 8523 “AN ACT STRENGTHENING THE DEVELOPMENT BANK OF THE PHILIPPINES,
AMENDING FOR THE PURPOSE EXECUTIVE ORDER NO. 81”.

DEVELOPMENT BANK OF THE PHILIPPINES HISTORY

- DBP's history can be traced back to the Commonwealth Era.

- 1935 the National Loan and Investment Board (NLIB) was created to coordinate and manage various
government trust funds such as the Postal Savings Fund and the Teacher's Retirement Fund.
- 1939 the NLIB was abolished and its functions were transferred to a new body, the Agricultural and Industrial
Bank (AIB). AIB continued operations until the outbreak of World War II.
- 1947 the government created the Rehabilitation Finance Corporation (RFC) under R.A. No. 85 which absorbed
the assets and took over the functions of the AIB.
- The RFC provided credit facilities for the development of agriculture, commerce and industry and the
reconstruction of properties damaged by the war.
- 1958 the RFC was reorganized into the modern-day DBP. The change in corporate name marked the shift from
rehabilitation to broader activities.

- With an initial capital of P500-million, DBP set to work on expanding its facilities and operations to accelerate
efforts towards promoting national economic development.

- The bank established a nationwide branch network and tapped local and foreign resources to complement its
capital.

- It also borrowed money directly from international finance institutions.

- In the late 1970s up to the early 1980s however, its viability was undermined by numerous non-performing
accounts.
- 1986 former Philippine President Corazon Aquino issued Executive Order No. 81, which reorganized the bank
and gave it a new charter. All non-performing assets and liabilities were subsequently transferred to the
government. DBP undertook an institutional strengthening program, including a thorough revision of its credit
process, as well as employee training programs towards the intensive implementation of its new lending thrusts.
DBP likewise reopened its lending windows for housing, agriculture and SMEs.
- 1995 DBP was granted an expanded banking license and attained universal banking status.

- Former Philippine President Fidel Ramos signed Republic Act 8523 in 1998, amending DBP's 1986 charter.

- Among the major provisions incorporated in the new DBP charter were the increase of authorized capital stock
from P5-billion to P35-billion, and the creation of the position of President and CEO.

- February 2016 former Philippine President Benigno Aquino III approved the merger of DBP with state-owned
Land Bank of the Philippines, with pending approval from the Bangko Sentral ng Pilipinas and written consent of
the Philippine Deposit Insurance Corporation.
- However, as of September 2016 the proposed DBP-Landbank merger has been canceled for implementation
by the Governance Commission for GOCCs (GCG).

DEVELOPMENT BANK OF THE PHILIPPINES ORGANIZATION

- The affairs and business of DBP are directed and its properties managed and preserved, and its corporate
powers exercised by a board of directors consisting of nine members, all appointed by the President of the
Philippines.
- The term of office of the chairman, president and the members of the board of directors are for a period of one
year or until such time as their successors are appointed.

- The chairman of the board is appointed by the President of the Philippines from among the members of the
board: provided, that the positions of chairman of the board and president of DBP are not to be held by the same
person.

- The DBP chairman presides at meetings of the board, while the president of the bank serves as vice-chairman
of the board, and as such, assists the chairman and acts in his stead in case of absence or incapacity.

- The chief executive officer of DBP is the President, who is elected by the board of directors from among
themselves with the advice and consent of the President of the Philippines.
- The DBP president shall, among other powers and duties, execute, carry out and administer the policies,
measures, orders and resolutions approved by the board; direct and supervise the operation and administration
of the bank; and exercise such other powers and perform such other functions or duties as may be assigned to
him by law or by the board from time to time.

- The DBP board of directors provides for an organization and staff of officers and employees of the bank and
upon recommendation of the DBP president, fix their remuneration and other emoluments.

- All positions in the bank are governed by the compensation, position classification system and qualification
standards approved by the DBP board of directors based on a comprehensive job analysis of actual duties and
responsibilities.
KEY OFFICIALS

• Alberto G. Romulo – chairman of the board of directors

• Emmanuel G. Herbosa – vice chairman/ president and chief executive officer
• Miguel C. Abaya – board director
• Maria Lourdes A. Arcenas – board director
• Luis C. Bonguyan – board director
• Emmanuel P. Galicia, Jr. – board director
• Rogelio V. Garcia – board director
• Teodoro M. Jumamil – board director
• Rolando L. Metin – board director

PROGRAMS

• DBP is the premier government financial institution dedicated to supporting the national government’s key
development programs.

• It has diligently put in place a comprehensive framework to spur progress in vital sectors of the economy
focusing on four major areas – infrastructure and logistics; social services; micro, small and medium enterprises;
and environment. DBP works hand-in-hand with key players from both the private and public sectors such as
local government units, national agencies, private corporations, multilateral and bilateral lending institutions,
private banks, rural banks, cooperatives, amongst others, in carrying out its various development programs and
initiatives.

INFRASTRUCTURE AND LOGISTICS

- DBP addresses this need through its Connecting Rural Urban Intermodal Systems Effic ( CRUISE) Program.
This umbrella program aims to support investments that improve country’s primary transport infrastructure and
logistics facilities to provide affordable, reliable and safe mass transport systems; support the efficient movement
of basic commodities; bring down the costs of goods and services; and introduce sustainable handling and
distribution technologies.

- DBP’s financial assistance also supports the government in the implementation of reforms and priority
investment in the power sector. This would include support for increased to electricity services and
transformation of Electric Cooperatives.
INFRASTRUCTURE CONTRACTORS SUPPORT (ICONS PROGRAMS)
• The ICONS Program supports the infrastructure thrust of the national government including its Public-Private
Partnership program, through direct financing of construction contractors as a complementary mode to fund
various types of infrastructure spending as a goal of the government, higher levels of credit support for
contractors will be needed to finance awarded contracts.

FINANCING UTILITIES FOR SUSTAINABLE ENERGY DEVELOPMENT (FUSED)

• The FUSED Program aims to contribute in the increase access to electricity services through financing in order
to help achieve inclusive growth and poverty reduction. At the end of the FUSED Program by 2030, it is expected
to have at least funded Php 40 Billion of the estimated investment requirement for power generation and
distribution in the Philippine Energy Plan 2012-2030.

DBP PASADA FINANCING PROGRAM (PROGRAM ASSISTANCE TO SUPPORT ALTERNATIVE DRIVING

APPROACHES)
• To support the implementation of the national government’s Public Utility Vehicle Modernization Program
(PUVMP) and its Omnibus Franchising Guidelines (OFG) under Department Order No. 2017-011 dated June
19, 2017 issued by the Department of Transportation (DOTr).

CONNECTING RURAL URBAN INTERMODAL SYSTEMS EFFICIENTLY (CRUISE)

• The CRUISE is DBP’s expanded financing program for the transport and logistics sectors that employs long-
term funds from various sources including Official Development Assistance funds such as the Logistics
Infrastructure Development Project from the Japan International Cooperation Agency. This is in support of
government initiatives for the creation of an integrated and multimodal national transport and logistics system as
embodied in the Philippine Development Plan 2011-2016.

WATER FOR EVERY RESIDENT (WATER) PROGRAM

• WATER Program is the umbrella program for the bank’s water supply projects. Its objective is aligned with the
thrust of the National Government as defined under the Philippine Water Supply Sector Roadmap prepared by
the national Economic Development Authority which aims, among others, to ensure adequate long-term
availability of and accessibility to potable water.

ENVIRONMENT AND CLIMATE CHANGE

- Proving its commitment to environmental protection and sustainable development, DBP is one of the first
Philippine banks to integrate environmental considerations in all aspects of its operations. We provide financing
as well as technical assistance to projects that are ecologically sound. We also play an active role in encouraging
clients and participating financial institutions, under our wholesale lending program, to include green
considerations in their businesses and thrusts.

GREEN FINANCING PROGRAM

• The Green Financing Program (GFP) is DBP’s umbrella program to support the Bank’s strategic thrust of
environmental protection and the country’s green growth strategy.

ENERGY EFFICIENCY SAVINGS (E2SAVE) FINANCING PROGRAM

• Designed to help public and private institutions in improving their productivity by harnessing the available new
technologies in the market for their energy efficiency projects, E2SAVE will allow loan repayment based on
electricity savings to make investment affordable to end-users.

LENDING INITIATIVE FOR SANITATION (LINIS) PROGRAM

• It aims to contribute in the National Government’s goal of achieving universal access to sanitation through
provision of credit assistance to local government units, water districts & private companies and thus help them
address compliance to: Clean Water Act of 2014.
MICRO, SMALL AND MEDIUM ENTERPRISES

- DBP fosters progress by championing Filipino entrepreneurs through its Sustainable Enterprises for Economic
Development (SEED) Program. DBP also helps communities flourish through employment generation and
support for local products.

SUSTAINABLE ENTERPRISES FOR ECONOMIC DEVELOPMENT (SEED)

• DPS's umbrella program for micro, same and medium enterprises (MSMEs). The SEED Program aims to spur
the contribution of MSMEs for sustainable economic development. The program also aims to enhance access
of MSMEs to credit facilities and fast-track the credit process; bring MSMEs in the mainstream of banking by
implementing alternative ways of securing MSMEs loans; and maximize the Bank's lending reach and to help
create employment and income opportunities.

TREE PLANTATION FINANCING PROGRAM (TPFP)

• The TPFP is a credit assistance program under the forestry sector for the expansion, harvesting, maintenance
and protection of existing tree plantations with at least 4 year old standing trees in at least 1% of the plantation
area of qualified private and public land.

SMALL BUSINESS PUHUNAN LOAN PROGRAM (SBPLP)

• The DBP Small Business Puhunan Loan Program (SBPLP) was crafted to support the government’s thrust to
provide credit for working capital to small enterprises. This program will open the doors of small borrowers who
may later on enter into the regular lending program where they can avail bigger loans.

SUSTAINABLE AGRIBUSINESS FINANCING PROGRAM (SAFP)

• The SAFP is a credit assistance program for agribusiness projects engaged in the production, harvesting,
processing, and marketing of crops, poultry, livestock, and fishery.

BROILER CONTRACT GROWING PROGRAM (BCGP)

• The Broiler Contract Growing Program (BCGP) is a sub-program under the Sustainable Agribusiness Financing
Program (SAFP). The program is designed to encourage contract growers to expand their business by facilitating
the financing of poultry broiler contract growing projects through shortened loan processing.

SOCIAL SERVICES & COMMUNITY DEVELOPMENT

- DBP lends to projects for heath care, education, housing and community development. The Bank helps provide
access to shelter for the poor, while supporting the development of infrastructure and community facilities in
cities and municipalities.

RESIDENTIAL REAL ESTATE FINANCING (RRFP) PROGRAM

• The Residential Real Estate Financing Program (RRFP) is DBP’s umbrella program to support the Bank’s
strategic thrust of social development through the provision of accessible financing to support shelter production
and secure tenure delivery.

DBP EDUCATIONAL FUND PROGRAM (DEFP)

• The DEF Program is DBP’s umbrella program to support the Bank’s strategic thrust of contributing to the
improvement of lives of Filipinos across the nation to make available the highest possible standards of quality
education.

CONTRACT-TO-SELL FINANCING FACILITY FOR REAL ESTATE DEVELOPERS (CTS PROGRAM)

• To provide residential real estate developers means to grow its housing portfolio efficiently; and to assist Key
Shelter Agencies (KSAs) in addressing the housing requirements of the country.
DBP REHABILITATION PROGRAM FOR AGRICULTURE AND INDUSTRY RESPONSIVENESS (DBP
REPAIR)
• The DBP Rehabilitation Program for Agriculture and Industry Responsiveness (DBP REPAIR) aims to support
the government’s efforts to rebuild calamity-affected areas while being true to the Bank’s directions as the
country’s premiere infrastructure bank. It aims to rehabilitate DBP and non-DBP financed projects that were
adversely affected by calamities and/or events arising from the occurrence of such calamities.

SUSTAINABLE HEALTH CARE INVESTMENT PROGRAM (SHCIP)

• The Sustainable Health Care Investment Program (SHCIP) responds to the financing needs of the country’s
health sector. It extends credit facility for health care investment projects with the aim of making health services
more available, accessible and affordable to communities throughout the country, especially to people belonging
to the lowest income group.

REDISCOUNTING LINE FACILITY FOR FINANCIAL INSTITUTIONS

• The Rediscounting Line facility for Financial Institutions is a credit facility to facilitate or augment funds needed
by wholesale borrowers, where availments on the rediscounting line are made against promissory notes of sub-
borrowers. It includes not only those project/business-based enterprises but also those for eligible salary based
general purpose consumption loans.

AMANAH ISLAMIC BANK

- Al-Amanah Islamic Bank traces its roots to the Philippine Amanah Bank, established by President Ferdinand
Marcos in 1973 by virtue of Presidential Decree No. 264. With an initial capital of 100 million pesos, it was one
of the world's first Islamic banks. Its charter originally mandated it to provide financial services to the provinces
of Basilan, Cotabato, Lanao del Norte, Lanao del Sur, Palawan, Sulu, Tawi-Tawi, Zamboanga del Norte and
Zamboanga del Sur, where there are large, if not predominant, Muslim populations.

- Al Amanah Islamic Investment Bank of the Philippines (AIB), a subsidiary of the Development Bank of the
Philippines (DBP), will play a vital role in the rehabilitation of war-torn Marawi City and the development of the
Bangsamoro Autonomous Region in Muslim Mindanao (BARMM).

MISSION

• To become a full Islamic Bank and afford Filipinos of the blessings and benefits of Islamic banking, financing
and investment.

• To be competitive and significant in the banking industry.

• To become a key-player in the global Islamic banking and investment market.

• Participate in all phases of development especially in the ARMM and Mindanao.

• To serve as arm of the Government in addressing poverty alleviation especially in Muslim Filipino communities
across the country by delivering them the goodwill and simplistic Islamic banking and financing that are
responsive, sensitive and suitable to their way of life.

• To equip Muslim Filipinos with Islamic banking and financial education that can help them improve their
economic condition and make them a significant economic force of the nation.
VISION

To be the leading and choice Islamic financial institution providing alternative banking services in response to
the emerging global Islamic markets and to promote and accelerate the socio-economic developments of the
Islamic communities in the Philippines by 2022.

HISTORY OF AL AMANAH ISLAMIC INVESTMENT

- 1972 Presidential Decree No. 264 created the Amanah Islamic Bank with an initial capitalization of 50 Million
pesos. Intended to become a development bank, it invested 75% of its total loanable funds on providing, among
others, reasonable medium and long-term credit facilities for the people of the Muslim-dominated provinces in
Cotabato, South Cotabato, Lanao del Sur, Lanao del Norte, Sulu, Basilan, Zamboanga del Norte, Zamboanga
del Sur and Palawan.
- 1974 Presidential Decree No. 542 retuned the direction of the Bank to adopt the "no interest principle" in
Islamic banking and partnership principles. However, the lack of recognition and support of Islamic banking in
the Country made the Bank less competitive in the predominantly conventional banking in the Country.
- 1990 the Bank became a Universal Bank through enactment of Republic Act No. 6848 otherwise known as
the Charter of Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP), with an authorized capital stock
of P1 billion consisting of 10 million common shares. Its mandate is primarily to participate in the socio-economic
development of the Autonomous Region of Muslim Mindanao (ARMM) by promoting and utilizing Islamic banking,
financing and investment in agricultural, commercial and industrial ventures in the ARMM.
- By mid-1990 three (3) of its branches, Cotabato, Marawi and Jolo began accepting and transforming ordinary
deposits into Islamic deposits. The other branches have been transacting both conventional and Islamic banking
products, services and facilities. From 1990 to 2007 AAIIBP managed its operation with the support of the Bureau
of Treasury.
- October 30, 2008 the Development Bank of the Philippines (DBP) obtained ownership of the 99.9%
shareholdings by acquiring the shares of the National Government, SSS and GSIS. It was on November 14,
2007 when DBP approved the acquisition of AAIIBP and on July 16, 2008 it took over full control of AllBP's
operation.
- October 22, 2009 the Monetary Board approved the Bank's 5-year Rehabilitation Plan, which focused on four
corporate strategies (4Rs), namely, Recapitalization, Restoration of Financial Viability, Reorganization and
Reforms Institutionalization. Under the Rehabilitation Plan, AAIIBP is allowed to continuously do both
conventional and Islamic banking.
- November 2009 DBP, marking the partial completion of recapitalization strategy, infused Php1.0 billion capital
to AAIIBP.
IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC ACT NO. 6848 (THE ISLAMIC BANK
CHARTER) BSP CIRCULAR NO. 105-96

Pursuant to Section 43 of R.A. No. 6848, otherwise known as "The Charter of the Al-Amanah Islamic Investment
Bank of the Philippines", the Monetary Board, in its Resolution Nos. 161 and 244 dated February 14 and March
6, 1996, respectively, approved the following Implementing Rules Regulations.

SECTION 1. Domicile and Place of Business

The principal domicile and place of business of Al-Amanah Islamic Investment Bank of the Philippines,
hereinafter called the Islamic Bank, shall be in Zamboanga City. It may establish branches, agencies or other
officer at such places in the Philippines or abroad subject to applicable laws, rules and regulations of the Bangko
Sentral ng Pilipinas.

SECTION 2. Purpose and Basis

The primary purpose of the Islamic Bank shall be promote and accelerate the socio-economic development of
the Autonomous Region by performing banking, financing and investment operations and to establish and
participate in agricultural, commercial and industrial ventures based on the Islamic concept of banking.

SECTION 3. Shari'a Advisory Council

The Shari'a Advisory Council of the Islamic Bank shall be composed of at least three (3) but not more than five
(5) members, selected from among Islamic scholars and jurists of comparative law. The members shall be
elected at a general shareholders' meeting of the Islamic Bank every three (3) years from a list of nominees
prepared by the Board of Directors of the Islamic Bank. The Board is hereby authorized to select the members
of the first Shari'a Advisory Council and to determine their remunerations.

SECTION 4. Functions of the Shari'a Advisory Council

The functions of the Shari'a Advisory Council shall be to offer advice and undertake reviews pertaining to the
application of the principles and rulings of the Islamic Shari'a to the Islamic Bank's transactions, but it shall not
directly involve itself in the operations of the Bank.

Any member of the Shari'a Advisory Council may be invited to sit in the regular or special meetings of the Board
of Directors of the Islamic Bank to expound his views on matters of the Islamic Shari'a affecting a particular
transaction but he shall not be entitled to vote on the question presented before the board meetings.

SECTION 5. Islamic Bank's Powers

The Al-Amanah Islamic Investment Bank of the Philippines, upon its organization, shall be a body corporate and
shall have the power:

1) To prescribe its by-laws and its operating policies;

2) To adopt, alter and use a corporate seal;

3) To make contracts, to sue and be sued;

4) To borrow money; to own real or personal property and to introduce improvements thereon, and to sell
mortgage or otherwise dispose of the same;

5) To employ such officers and personnel, preferably from the qualified Muslim sector, as may be necessary to
carry Islamic banking business;

6) To establish branches, agencies and correspondent offices in provinces and cities in the Philippines,
particularly where Muslims are predominantly located, or in other areas in the country or abroad as may be
necessary to carry on its Islamic banking business, subject to the rules and regulations of the Bangko Sentral;

7) To perform the following banking services:

• Open current or checking accounts;

• Open savings accounts for safekeeping or custody with no participation in profit and losses unless otherwise
authorized by the account holders to be invested;
• Accept investment account placements and invest the same for a term with the Islamic Bank's funds in
Islamically permissible transactions on participation basis;

• Accept foreign currency deposits from banks, companies, organizations and individuals, including foreign
governments: Buy and sell foreign exchange;

• Act as correspondent of banks and institutions to handle remittances or any fund transfers;

• Accept drafts and issue letters of credit or letters of guarantee, negotiate notes and bills of exchange and other
evidence of indebtedness under the universally accepted Islamic financial instruments;

• Act as collection agent insofar as the payment orders, bills of exchange or other commercial documents are
exclusive of riba or interest prohibitions;

• Provide financing with or without collateral by way of Al-Ijarah (leasing). Al-Bai ul Takjiri (sale and leaseback),
or Al-Murabahah (cost-plus profit sales arrangement);

• Handle storage operations for goods or commodity financing secured by warehouse receipts presented to the
Bank;

• Issue shares for the account of institutions and companies assisted by the Bank in meeting subscription calls
or augmenting their capital and/or fund requirements as may be allowed by law;

• Undertake various investments in all transactions allowed by the Islamic Shari'a in such a way that shall not
permit the haram (forbidden), nor forbid the halal (permissible).

UCPB

Type : State-owned
Industry : Finance and Insurance
Founded : Manila, Philippines (May 15, 1963 ; 56 years ago)
Headquarters : Makati, Philippines
Key People : Danilo V. Pulido (Acting chairman of the Board)
Liduvino S. Geron (Officer-in-charge)
Products : Financial Services
Net Income : ₱ 3.3 Billion ( ) (2015)
Number of Employees : 4,064
Website : www.ucpb.com

- The United Coconut Planters Bank, more popularly known by its initials, UCPB, or by its old name, Cocobank,
is a government-controlled and one of the largest banks in the Philippines, ranking within the top twenty banks
in the country in terms of assets.

- It is the only existing universal bank not listed on the Philippine Stock Exchange.

- The bank, owing to its name, caters heavily to coconut farmers, but also serves a wide-ranging clientele.
- July 2020 the Philippine government raised its stake with the bank to 97%, thus resulting for its conversion to
a government-controlled bank.
UCPB HISTORY
- UCPB started on May 15, 1963 as First United Bank (Philippines). With only four branches at the time, it was
a small commercial bank.
- UCPB's origin can be found in Presidential Decree 755 (or P.D. 755) where President Ferdinand Marcos on
July 29, 1975 instructed the Philippine Coconut Authority (PCA) to " formulate and recommend for adoption
credit policies affecting production, marketing and processing of coconut and other palm oils" and "to provide
readily available credit facilities to the coconut farmers at preferential rates."

- The PCA, headed by Juan Ponce Enrile, then purchased the 72.2 percent of First United Bank owned by Jose
Cojuangco.
- Cocobank was the official short bank name in the 1980s and the early 1990s.

- In 1990 UCPB, along with Equitable Banking Corporation (now Banco de Oro Universal Bank), Philippine
National Bank and the Far East Bank and Trust Company (now the Bank of the Philippine Islands), formed
MegaLink, one of the three main interbank networks in the Philippines.
- However, UCPB's ATM services date back to the 1980s when it was one of the first financial institutions to offer
ATM services.
- It established its pre-need services arm Cocoplans in 1993.

- The bank is also heavily involved in social development projects and other charity works.

- Today, UCPB is one of the largest Philippine banks, with 188 branches and 279 ATMs nationwide.

- It is also the only universal bank to have a rural banking subsidiary, although this has since been merged into
its thrift banking operations since late 2005.

- In November the last quarter of 2015, UCPB is now a member of BancNet.

- In 2018 the bank started its conversion to a government bank, joining the league of LandBank, Development
Bank of the Philippines and Overseas Filipino Bank.
- Later in 2020 the Philippine government dropped the privatization plans of the bank by further raising its stake
of ownership from 75% to 97%, thus resulting furthermore for UCPB in becoming as a state owned and controlled
bank.

SUBSIDIARIES AND AFFILIATES

Subsidiaries of UCPB are the following:

- UCPB Leasing and Finance Corporation

- UCPB Savings Bank
- UCPB Securities, Inc.

COMPETITION

- Due to its position as a universal bank, UCPB competes primarily against major Philippine banks like Metrobank,
Banco de Oro, East West Unibank, BPI, Land Bank of the Philippines and Philippine National Bank.
- As a state controlled bank, it joins the league in competition with other government banks - Development Bank
of the Philippines, LandBank and Overseas Filipino Bank.

OVERSEAS FILIPINO BANK

Formerly : Philippine Postal Savings Bank, Inc. (1906-2018)

Type : state-owned
Industry : Finance and Insurance
Founded : Manila, Philippines (March 24, 1906 ; 114 years ago)
Headquarters : Manila, Philippines
Key People : Cecilia Borromeo (Chairman)
Leila Martin (Vice Chairman, President and CEO)
Net Income : ₱ 19.2 million ( 11%) (2008)
Parent : Land Bank of the Philippines
Website : www.overseasfilipinobank.gov.ph

OVERSEAS FILIPINO BANK HISTORY

- Established as Philippine Postal Savings Bank in 1906 the bank was closed in 1976 as a result of competition
with privately owned banks but was reopened in 1994 pursuant to the provisions of Republic Act No. 7354, the
charter of the Philippine Postal Corporation.

- 2013 the bank rebranded its operations as "Postbank".

- Despite the legal affiliation, the PPSB is governed separately from PhilPost.

CONVERSION TO OVERSEAS FILIPINO BANK

- November 16, 2016 Land Bank of the Philippines announced plans to acquire Postbank and is targeted to be
a lending bank for the Overseas Filipino Workers and their families.
- President Rodrigo Duterte issued Executive Order No. 44 in September 2017 which mandates the Philippine
Postal Corporation and the Bureau of the Treasury their PostBank shares to LANDBANK at zero value.

- The edict also states that PostBank will be converted to the "Overseas Filipino Bank"

- The Monetary Board of the Bangko Sentral ng Pilipinas approved Land Bank's acquisition of PostBank in
December 2017 while the Philippine Competition Commission authorized Land Bank to acquire PostBank on
January 11, 2018.

- The bank was inaugurated as the Overseas Filipino Bank at the Postbank Center by President Duterte on
January 17, 2018.

- June 29, 2020 Land Bank of the Philippines virtually launched the Overseas Filipino Bank (OFBank) which
aims to help Filipinos employed abroad to send money home faster.

- The virtual launch includes the presentation of OFBank’s new offerings such as digital accounts opening
platform catering to Overseas Filipinos (OFs), Overseas Filipino Workers (OFWs), and their families or
beneficiaries, as well as the improved website and official Facebook page.
- As it is a digital-only bank, OFWs and their beneficiaries can just submit all requirements online through
OFBank's mobile app. OFBank is regulated by the Bangko Sentral ng Pilipinas (BSP).

UNIVERSAL BANK (EKB) and PHILIPPINE DEPOSIT INSURANCE CORPORATION

BANKS IN GENERAL
Definition of a Bank: An institution whose current operations consist in granting loans and receiving deposits
from the public. (Freixas and Rochet)
Functions of a Bank
Four main functions:
1. Offer access to a payment system
2. Transform assets
✓ Convenience
✓ Quality
✓ Maturity
3. Manage risks
 ✓ Credit Risk
✓ Interest rate risk
✓ Liquidity risk
4. Process information and monitor borrowers

Commercial Banks in General

Two types of Commercial Banks in the Philippines:
1. Ordinary Commercial Banks
2. Expanded Commercial Banks (Universal Banks)
➢ Large banks which have additional powers not shared by ordinary banks.
UNIVERSAL BANKS
As to Powers
1. Powers authorized for a Commercial Bank
2. Powers of an investment house
3. Power to invest in Non-Allied Enterprises

As to Equity Investments
1. Allied (financial or non-financial) and Non-Allied Enterprises ------- shall not exceed 50%
2. One enterprise (Allied or Non-Allied Enterprise)------------------------ shall not exceed 25%

As to Equity Investments in Financial Allied Enterprises

1. Thrift Bank
2. Rural Bank can own up to 100%
3. Financial Allied Enterprise

As to Equity Investment in Non-Financial Allied Enterprises

❖ may own up to 100%

As to Equity Investments in QBs

❖ MB may further limit to 40%

As to Equity Investments in Non-Allied Enterprises

❖ shall not exceed 35% of the total equity
❖ nor shall exceed 35% of the voting stock

REPUBLIC ACT NO. 8791 - AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND
OPERATIONS OF BANKS, QUASI-BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES

SECTION 23. Powers of a Universal Bank. — A universal bank shall have the authority to exercise, in addition
to the powers authorized for a commercial bank in Section 29, the powers of an investment house as provided
in existing laws and the power to invest in non-allied enterprises as provided in this Act.
SECTION 24. Equity Investments of a Universal Bank. — A universal bank may, subject to the conditions
stated in the succeeding paragraph, invest in the equities of allied and non-allied enterprises as may be
determined by the Monetary Board. Allied enterprises may either be financial or non-financial. Except as the
Monetary Board may otherwise prescribe:
24.1. The total investment in equities of allied and non-allied enterprises shall not exceed fifty percent (50%) of
the net worth of the bank; and
24.2. The equity investment in any one enterprise, whether allied or non-allied, shall not exceed twenty-five
percent (25%) of the net worth of the bank.
SECTION 25. Equity Investments of a Universal Bank in Financial Allied Enterprises. — A universal bank
can own up to one hundred percent (100%) of the equity in a thrift bank, a rural bank or a financial allied
enterprise. A publicly-listed universal or commercial bank may own up to one hundred percent (100%) of the
voting stock of only one other universal or commercial bank.
SECTION 26. Equity Investments of a Universal Bank in Non-Financial Allied Enterprises. — A universal
bank may own up to one hundred percent (100%) of the equity in a non-financial allied enterprise.
SECTION 27. Equity Investments of a Universal Bank in Non-Allied Enterprises. — The equity investment
of a universal bank, or of its wholly or majority-owned subsidiaries, in a single nonallied enterprise shall not
exceed thirty-five percent (35%) of the total equity in that enterprise nor shall it exceed thirty-five percent (35%)
of the voting stock in that enterprise.
SECTION 28. Equity Investments in Quasi-Banks. — To promote competitive conditions in financial markets,
the Monetary Board may further limit to forty percent (40%) equity investments of universal banks in quasi-banks.
This rule shall also apply in the case of commercial banks

EXPANDED COMMERCIAL BANK

Objectives
✓ Discuss the definition of expanded commercial bank and its examples
✓ Identify the three main services of universal bank
✓ Explain the concept of universal bank

What is a Universal Bank? Definition and Examples

A universal bank is a bank that combines the three main services of banking under one roof. The three services
are wholesale banking, retail banking, and investment banking. In other words, it is a retail bank, a wholesale
bank, and also an investment bank. As well as being able to offer an all-encompassing service, universal banks
can reap the synergies that exist when they operate in the three services simultaneously.

A universal bank, logically, offers universal banking. Universal banking is a type of financial service that combines
the aspects of investment, retail, and wholesale banking.

A typical universal bank also offers other financial services such as insurance.

The Financial Times’ glossary of terms, has the following definition of universal bank:

“A universal bank is a financial service conglomerate combining retail, wholesale and investment banking
services under one roof and reaping synergies between them.”

“The notion is that they would benefit from economies of scale in information technology and access to capital
to serve companies and retail customers around the world.”
World’s Most Known Universal Banks: BNP Paribas, Deutsche Bank, Morgan Stanley, and JP Morgan Chase,
for example, are universal banks. Citigroup, Bank of America, UBS, Credit Suisse, HSBC, and Barclays are also
universal banks. In fact, the twenty largest banks in the world are all universal banks.
Largest Banks in the Philippines: BDO, Metrobank, BPI, LandBank, PNB, Security Bank, ChinaBank,
Development Bank, Union Bank, Rizal Commercial Bank

UNIVERSAL BANK SERVICES

Universal banks offer three main services:
Retail Banking
Retail banking services members of the public and small and medium-size businesses. It focuses on looking
after customers’ money as well as offering loans and mortgages.

Retail banking includes the following services: savings accounts, checking accounts (UK: current accounts),
overdrafts, personal loans, and mortgages.

It also includes the provision of credit/debit cards, travelers’ checks, safe deposit boxes, and certificates of
deposit.
Wholesale Banking
Wholesale banking involves borrowing and lending money on a very large scale. Retail banks deal with relatively
small amounts per customer. Wholesale banks, on the other hand, deal with massive amounts.

Wholesale banks’ customers include pension funds, giant companies, governments, and other financial
institutions.
Investment Banking
Investment banks focus on services for major investors and companies. They specialize, for example, in the
investment requirements of pension funds.

Investment banks do not take deposits. In the UK, Ireland, and some other Commonwealth countries, people
call them merchant banks.

The main activities of investment banks are asset management, M&A, raising capital, securities trading, and
securities underwriting. M&A stands for Mergers and Acquisitions.

UNIVERSAL BANK CONCEPT

The universal bank concept is most relevant in the United States and the United Kingdom. Historically, in both
countries, there has been a clear difference between commercial and investment banks. In this context, a
commercial bank is a retail bank (UK: high street bank).

The Glass-Steagall Act of 1933 drew the distinction in the US.

However, the regulatory barrier to the combination of commercial and investment banks has mostly gone today.
Therefore, several universal banks have emerged in both the British and American jurisdictions.

There were once many pure investment banks. However, since the Global Financial Crisis of 2007/8 and the
Great Recession that followed, the banking environment has changed.

Wikipedia says the following regarding the banking environment in other countries:
“In other countries, the concept is less relevant as there is no regulatory distinction between investment banks
and commercial banks.”

“Thus, banks of a very large size tend to operate as universal banks, while smaller firms specialized as
commercial banks or as investment banks.”

Definition of Terms:
Activities or Services under Retail and Investment Banking
➢ Savings Account - an interest-bearing deposit account held at a bank or other financial institution.
➢ Checking Account - a bank account that allows easy access to the funds in your bank account. Also
called a transactional account, it’s the account that you will use to pay your bills and make most of your financial
transactions.
➢ Current Account - an account at a bank against which checks can be drawn by the account depositor; a
checking account.
➢ Overdraft - a deficit in a bank account caused by drawing more money than the account holds.
➢ Personal Loan - A personal loan is money borrowed from a bank, credit union or online lender that you
pay back in fixed monthly payments, or instalments, typically over two to five years.
➢ Mortgage - a legal agreement by which a bank or other creditor lends money at interest in exchange for
taking title of the debtor's property, with the condition that the conveyance of title becomes void upon the payment
of the debt.
➢ Credit Card - a small card issued by a bank, business and so on allowing the holder to purchase goods or
services on credit.
➢ Debit Card - a card issued by a bank allowing the holder to transfer money electronically to another bank
account when making a purchase.
➢ Traveler’s Check - a once-popular but now largely outmoded medium of exchange utilized as an
alternative to hard currency. The product typically is used by people on vacation in foreign countries. It offers a
safe way to travel overseas without cash.
➢ Safe Deposit Box or Safety Deposit Box - an individually secured container, usually a metal box that
stays in the safe or vault of a federally insured bank or credit union. Safe deposit boxes are used to keep
valuables, important documents, and sentimental keepsakes protected. Customers rely on the security of the
building and vault to safeguard their contents.
➢ Certificate of Deposit - a certificate issued by a bank to a person depositing money for a specified
length of time.
➢ Asset Management - the direction of all or part of a client's portfolio by a financial services institution,
usually an investment bank, or an individual.
➢ Mergers and Acquisitions (M&A) - area of corporate finances, management and strategy dealing with
purchasing and/or joining with other companies.
➢ Raising Capital - The ability of an individual to obtain money/funds in order to get the business off the
ground or help in the daily operations of the business such as the purchase of materials and payment of wages
etc. is known as his capital raising skills.
➢ Securities Trading - investments in debt or equity that management plans to actively trade for profit in the
current period.
➢ Securities Underwriting - process by which investment banks raise investment capital from investors on
behalf of corporations and governments that are issuing securities.

Manual of Regulations for Banks

Bangko Sentral ng Pilipinas
Section X102.1
Prerequisites for the grant of a universal banking authority

a. Compliance with guidelines. A domestic bank seeking authority to operate as a UB shall submit an
application to the appropriate department of the SES. The applicant shall comply with the guidelines for the
issuance of a UB authority and shall submit all the documentary requirements.
b. Public offering of bank shares. A domestic bank applying for a UB authority shall, as a condition to the
approval of its application, make a public offering of at least ten percent (10%) of the required minimum capital
and this condition must be complied with before it can be granted the license for authority to operate as a UB.
The term public offering shall mean the offer to sell equity shares to the public. Public shall refer to all prospective
stockholders, excluding the bank’s directors, shareholders owning twenty percent (20%) or more of the bank’s
subscribed capital stock, together with those of their relatives within the fourth degree of consanguinity or affinity,
and corporations controlled or affiliated with them. A bank whose shares of stock are already listed in the
Philippine Stock Exchange (PSE) at the time of filing of its application for UB authority shall be deemed to have
complied with the public offering requirement. Likewise, an applicant bank may opt to have its shares listed in
the PSE directly instead of passing through the process of public offering. In either case, at least ten percent
(10%) of the applicant bank’s capital stock should be held by public stockholders before it can be granted the
license for authority to operate as a UB.
c. Listing of bank shares in the stock exchange. Domestic banks granted a UB license, existing or new, must
list their shares in the PSE within three (3) years: Provided, That in the case of new UBs, the three (3) year
period shall be reckoned from the date the license to operate as a UB was granted. In the case of existing UBs
which have not listed their shares in the exchange, the three (3) year period lapsed §§ X102.1 - X102.3 16.12.31
Part I - Page 6 Manual of Regulations for Banks 1 The moratorium applied to all applications for establishment
of new banks as of 16 August 1999. The moratorium for establishing new KBs lapsed on 12 June 2003, pursuant
to Section 8 of R.A. No. 8791. on 27 December 1998.

Section 1127
Shares of Stock of Universal/ Commercial Banks.

The following guidelines shall also govern shares of stock in UBs and KBs.
1127.1 Limits on stockholdings in several banks.
Stockholders affiliated to each other through a common interest herein termed a business group or any
corporation or association majority or all of the equity of which is owned by a business group may not control
more than one (1) KB nor more than one (1) UB or both.

Any natural person or a family group, who, together, with any corporation majority or all of the equity of
which is owned by such person or family group, owns more than forty percent (40%) of the voting stock of any
UB or KB may not acquire more than forty percent (40%) of the voting stock in any other UB or KB, even if the
shares of stock are being acquired from a natural person in a single transaction and the stockholding is in excess
of forty percent (40%) of the bank’s voting stock.

For purposes of determining applicability of the limitations provided in this Section, stockholders shall
be deemed as affiliated to each other through common business interest or a business group in cases where
the holdings of such stockholders altogether constitute a majority or control in one (1) or more enterprises.

Section X201
Authority to Accept or Create Demand Deposits.
Banks may accept or create demand deposits subject to withdrawal by check. A UB/KB may accept or
create demand deposits subject to withdrawal by check, without prior authority from the Bangko Sentral. A
TB/RB/Coop Bank may accept or create demand deposits upon prior authority of the Bangko Sentral.
Sec. X214
Withdrawals.
Banks are prohibited from issuing/accepting withdrawal slips or any other similar instruments designed to
effect withdrawals of savings deposits without requiring the depositors concerned to present their passbooks
and accomplishing the necessary withdrawal slips, except for banks authorized by the Bangko Sentral to adopt
the no passbook withdrawal system: Provided, That banks which are already adopting the no passbook
withdrawal system shall be given six (6) months from effectivity of this Manual to seek approval from the Bangko
Sentral.

Sec. X231
Term of Time Deposits.
Time deposits shall be issued for a specific period of term.

Sec. X232
Special Time Deposits.
Authority shall be automatically granted to any accredited banking institution which may participate in
the supervised credit program to accept special time deposits from the Agrarian Reform Fund Commission with
interest lower than the rate allowed on time deposits accepted from the general public. Such deposits

PHILIPPINE DEPOSIT INSURANCE CORPORATION

Republic Act No. 3591 also known as the PDIC Charter Deposit Insurance System- type of protective
institution.

Primary objective: to protect the people’s deposit from bank runs or plain and simple bank failures.

Rationale Behind a Deposit Insurance System

➢ Deposit Insurance System gives assurance to the depositors of member banks that their money would not
be completely lost in case their banks close down.
➢ In the Philippines, the maximum coverage is presently set from ₱250,000 to ₱500,000 (amended by R.A.
9576)
➢ “Partially Covered System”- only those below the deposit ceiling (deposits of ₱250,000 or less) are insured.

Protection for Small Depositors

➢ To protect those least able depositors to protect themselves
➢ Refers to the smallsavers.

Banking System Confidence

➢ Promotes confidence in the banking system
➢ Philippines as the 5th country to set up a partial deposit insurance system
➢ 115 countries with a formal deposit insurance schemebut there are still a number of East Asian countries
that do not have a deposit insurance system.
Deposit Insurance System in Asia
Country Status Year of Establishment
Philippines With DIS 1969/1963
Japan With DIS 1971
Taiwan With DIS 1985
South Korea With DIS 1996
Malaysia With DIS 2005
Indonesia With DIS 2005
Hong Kong Without DIS In process
Singapore Without DIS In process
Thailand Without DIS In process
China Without DIS Planned

Countries without DIS

➢ France - Commission de Controle des Banques
• Proper organization of registered banks
• Determining the rules regarding bank liquidity and reserves
• Exercising control over financial stability
• Demand information from the bank or subject their books to anexamination or audit and impose
appropriate sanctions

➢ Switzerland
• Having insurance would go against the presumed integrity and honesty of their banks
• Would destroy their tradition of privacy, which Swiss banks are proud of and known for.

Basic Policy Issues

➢ Banks have two main sources of funds – stockholders and depositors.
➢ Main policy issue -- to insure depositors against losses in case of bank failures
➢ “too-big-too-fail” – by providing large emergency loans to big, but insolvent banks.
➢ Eliminating deposit insurance completely may not be justified considering the low level of development
and limited economic literacy of the Philippines.
➢ Deposit insurance is not for everybody. It is a government’s call.

Deposit Insurance in RP Setting

➢ The PDIC - a government corporation created for the primary purpose of insuring bank deposits
➢ Created in 1963 but becoming fully operational in 1969
➢ To prevent bank closures , provides financial assistance to distressed banks, and assists in the reopening
of closed banks.

Banks are insured upon the approvalof the PDIC directors based on the following grounds: (a) the financial
history and condition of the bank, (b) the adequacy of its capital structure, (c) its future earnings prospects, (d)
the general character of its management, (e) the convenience and needs of the community to be served by the
bank, and (f) the adequacy of the bank’s asset in excess of its capital requirements to enable it to meet all its
liabilities to depositors and other creditors.

Sources of Funds
1. Permanent Insurance Fund (PIF)
2. Annual assessment premium rate
3. Borrowings from the BSP
 4. Investment
5. Fund raised by issuing bonds/ debentures and other obligations.

LAWS ON PHILIPPINE DEPOSIT INSURANCE CORPORATION

➢ Republic Act No. 3591 also known as the PDIC Charter AN ACT ESTABLISHING THE PHILIPPINE
DEPOSIT INSURANCE CORPORATION, DEFINING ITS POWERS AND DUTIES AND FOR OTHER
PURPOSES

➢ REPUBLIC ACT No. 9576 April 29, 2009

AN ACT INCREASING THE MAXIMUM DEPOSIT INSURANCE COVERAGE, AND IN CONNECTION
THEREWITH, TO STRENGTHEN THE REGULATORY AND ADMINISTRATIVE AUTHORITY, AND
FINANCIAL CAPABILITY OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC), AMENDING
FOR THIS PURPOSE REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED NINETY-ONE, AS
AMENDED, OTHERWISE KNOWN AS THE PDIC CHARTER, AND FOR OTHER PURPOSES

FREQUENTLY ASKED QUESITONS

What is the Philippine Deposit Insurance Corporation (PDIC)?

PDIC is a government instrumentality created in 1963 by virtue of Republic Act 3591 to insure the deposits of all
banks which are entitled to the benefits of insurance. The latest amendments to RA 3591 are contained in RA
10846 signed into law on May 23, 2016. RA 10846 empowered PDIC with stronger authorities to protect the
depositing public and promote financial stability. The new law also includes important provisions to ensure that
the PDIC remains financially and institutionally strong to fulfill its mandate under its Charter.

The PDIC now has the authority to help depositors have quicker access to their insured deposits should their
bank close; resolve problem banks while still open; hasten the liquidation process for closed banks; and mete
out stiffer sanctions and penalties against those who engage in unsafe and unsound banking practices.

The PDIC is an attached agency of the Department of Finance.

What is PDIC’s overall mandate?

PDIC exists to provide deposit insurance coverage for the depositing public to help promote public confidence
and stability in the economy. It ensures prompt payment of insured deposits, exercises complementary
supervision of banks, adopts responsive resolution methods, and applies efficient management of receivership
and liquidation functions.

What are the functions of PDIC?

• Deposit Insurer
• Co-regulator of Banks
• Receiver and Liquidator of Closed Banks

What is PDIC’s maximum deposit insurance coverage?

Effective June 1, 2009, the maximum deposit insurance coverage is P500,000 per depositor. All deposit accounts
by a depositor in a closed bank maintained in the same right and capacity shall be added together.

Under R.A. No. 9576, the PDIC may propose to adjust the MDIC, subject to the approval of the President of the
Philippines, in case of a condition that threatens the monetary and financial stability of the banking system that
may have systemic consequences.

What is an insured deposit?

The term ‘insured deposit’ means the amount due to any bona fide depositor for legitimate deposits in an
insured bank net of any obligation of the depositor to the insured bank as of date of closure, but not to exceed
P500,000.00.

A joint account shall be insured separately from any individually-owned deposit account.

R.A. No. 9576 stipulates that PDIC will not pay deposit insurance for the following accounts or transactions:
1. Investment products such as bonds, securities and trust accounts;
2. Deposit accounts which are unfunded, fictitious or fraudulent;
3. Deposit products constituting or emanating from unsafe and unsound bankingpractices;
4. Deposits that are determined to be proceeds of an unlawful activity as definedunder the Anti-Money
Laundering Law.

Are all banks members of PDIC?

Membership of banks to PDIC is mandatory; hence, all operating banks are members of PDIC.

What types of deposits are insured by PDIC?

Except for the exclusions stipulated in RA 9576, deposits of all commercial banks, savings and mortgage banks,
rural banks, private development banks, cooperative banks, savings and loan associations, as well as branches
and agencies in the Philippines of foreign banks and all other corporations authorized to perform banking
functions in the Philippines, are insured with PDIC. As for Philippine banks with branches outside the country,
RA 9576 stipulates that subject to the approval of the Board of Directors, any insured bank with branch outside
the Philippines may elect to include for insurance its deposit obligations payable at such branch.

Foreign currency deposits are also insured by PDIC pursuant to RA 6426 (“An act instituting a foreign currency
deposit system in the Philippines, and for other purposes”) and Central Bank (CB) Circular No. 1389. Depositors
may receive payment in the same currency in which the insured deposit is denominated.

Exclusions from deposit insurance coverage as stipulated in R.A. No. 9576:

1. Investment products such as bonds, securities and trust accounts.
2. Deposit accounts which are unfunded, fictitious or fraudulent.
3. Deposit products constituting or emanating from unsafe and unsound bankingpractices.
4. Deposits that are determined to be proceeds of an unlawful activity as definedunder the Anti-Money
Laundering Law.

Are deposits maintained in branches and subsidiaries of foreign banks operating in the Philippines insured by
the PDIC?
Yes, the PDIC Charter provides that the deposits in branches and subsidiaries of foreign banks licensed by the
Bangko Sentral ng Pilipinas (BSP) to perform banking functions in the Philippines are insured by the PDIC.

Are deposits maintained in Philippine banks with branches outside the Philippines insured by the PDIC?
The PDIC Charter provides that a Philippine bank may elect to insure with the PDIC its deposits in branches
outside the Philippines. As of 31 December 2012, no Philippine bank has elected to insure deposits in their
foreign branches with PDIC.

To verify if your deposits in a branch of a Philippine bank outside the Philippines are covered by deposit insurance
in the host foreign country, please inquire with the account officer of your branch.
What specific risks to a bank does PDIC cover?
PDIC covers only the risk of a bank closure ordered by the Monetary Board. Thus, bank losses due to theft, fire,
closure by reason of strike or existence of public disorder, revolution or civil war, are not covered by PDIC.

Shall the depositor pay any insurance premium to PDIC?

No. Insurance premium is paid by the banks, not by the depositors. The bank is assessed 1/5 of 1% per annum
of the assessment base of the bank.

How is insurance coverage determined?

In determining the insured amount, the outstanding balance of each account is adjusted, such that interests are
updated, withholding taxes are deducted, accounts maintained by a depositor in the same right and capacity are
added together; and whenever applicable, unpaid loans and other obligations of the depositor are deducted; and
in no case shall insured deposit exceed P500,000.

R.A. No. 9576 stipulates that PDIC will not pay deposit insurance for the following accounts or transactions:
1. Investment products such as bonds, securities and trust accounts;
2. Deposit accounts which are unfunded, fictitious or fraudulent;
3. Deposit products constituting or emanating from unsafe and unsound bankingpractices;
4. Deposits that are determined to be proceeds of an unlawful activity as defined under the Anti-Money
Laundering Law.

Can PDIC insurance coverage be increased by having several accounts in the same name in an insured bank?
No. Deposit insurance coverage is not determined on a per-account basis. The type of account (whether
checking, savings, time or other form of deposit) has no bearing on the amount of insurance coverage.

If I have deposits in several different insured banks, will my deposits be added together for insurance purposes?
No. Deposits in different banking institutions are insured separately. However, if a bank has one or more
branches, the main office and all branch offices are considered as one bank. Thus, if you have deposits at the
main office and at one or more branch offices of the same bank, the deposits are added together when
determining deposit insurance coverage, the total of which shall not exceed P500,000.

Is there a need for a depositor to file his claim for insured deposit with PDIC?
Yes. Depositors will be advised through the national and/or local media and posters at the premises of the closed
insured bank and other public places within the locality on the schedule of distribution of claim forms by PDIC,
receiving of claim forms by PDIC, and the prescriptive date of filing claims by the depositors.

When should the depositor of a closed insured bank file his claim with PDIC?
The depositor of the closed insured bank has 24 months from date of bank takeover to file his deposit insurance
claim.

What happens when the depositor of a closed bank fails to file his claim within the 24-month period?
All rights of the depositor with respect to the insured deposit shall no longer be honored. But he may still make
a claim against the assets of the closed bank.

How long does it take PDIC to settle a claim for insured deposit?
PDIC aims to pay valid claims as soon as possible. Prior to payout, claims are examined thoroughly. This is to
protect the Deposit Insurance Fund (DIF) which is the source of insurance payments. Sometimes, depositors
mistakenly assume that the payouts are sourced from their deposits. This is not the case. The payouts are from
PDIC’s own funds.

The claim for insured deposit should be settled within six (6) months from the date of filing provided all
requirements are met but the claim must be filed within twenty-four (24) months after bank takeover. The six-
month period shall not apply if the documents of the claimant are incomplete or if the validity of the claim requires
the resolution of issues of facts and law by another office, body or agency, independently or in coordination with
PDIC.

What processes are involved before PDIC starts servicing claims?

Deposit records are subjected to an examination prior to the start of servicing/settlement of claims.
Claims are evaluated and processed according to PDIC's standard procedures.

How long does the pre-settlement examination take?

The length of time needed for the pre-settlement examination of deposit liabilities of a closed insured bank
largely depends on the completeness and accuracy of records turned over by the Bank to PDIC and the
number of deposit accounts to be examined.

If the deposit account in a closed bank is more than P500,000.00, what happens to the excess of the maximum
amount of insured deposit?
The claim for the uninsured portion of the deposit is a claim against the assets of the closed bank.

The claim may be filed with the Liquidator of the closed bank within sixty (60) days from publication of notice of
closure. However, payment of said claim will depend on the bank’s available assets and approval of the
Liquidation Court. The schedule of payment beyond the P500,000.00 maximum insurance shall be based on
priorities set by law.