MODULE 3/ CHAPTER 3 4. 2nd century A.

D as money = They develop

manyMODERN
1. Historical By the 2nd century A.D.,
transactionswere registered by
BANKING FUNCTIONS
Perspective INCLUDING:
public notaries.
Worldwide  Mainting
Runner of clearing house made by
deposits
1.2000 B.C the Charperfere purchases or
credited were recorded no money
 Making loans
The development of the banking
change hand.  Keeping reserves
system and early banking practices  Creating Money
started in the temples of Babylon  Settlements made by a
as far back as 2,000 B.C. certain designated period. EMEBELLISH HOW GOLDSMITG
 Seditary Bankeers of OPERATED AS A BANK
 They gave loans,
Mediteranian City-
didstributed to those  Goldsmith Banker
especially Venice, Geroa
people who needs sucj as
widows.
and Emphatus gave business Role
emphatus to the Emerge in 17th
 Credit Transaction , such
COMMERCIAL BANKING
as clay tablet
SYSTEM TODAY Century London
graudally expanded
2. 8th century B.C
2. Goldsmiths Services:
Earlier versions of bank drafts 1. Storage of wealth
andchecks were in wide use in A goldsmith is a metal
2. Providing Loans
Assyria sometime during the 8th worker who specializes
century B.C. 3. Transfer of Money
inworking with gold and other
precious metals. Nwadays they 4. Providing bills of
3. 4th century B.C Exhange that would
mainly specialize in jewelry-
temples, public bodies, and making but historically, Lead the Development
private firms were dealing in the goldsmiths have also made of checks.
receipt of deposits and the silverware, platters, goblets,
loaning of funds.
GOLDSMITH BANKER
decorative and serviceable
utensils, and ceremonial or =BECAME THE KEY
 THE Greek System both DEVELOPMENT IN THE
religious items.
influence Egypt and HISTORY OF THE BANKING
Rome Goldsmiths often acted as THAT LEAD TO MODERN
 Runner of clearing bankers, since they dealt in gold
BANKING
house made by the and had sufficient security for
Charperfere purchases the safe storage of valuable 3. ROLES OF GOLDSMITH
or credited were items, though they were usually
recorded no money restrained from lending at  maintainingsaf
change hand. e Goldsmiths
interest, which was regarded
STORAGE OF GOLD ,
 Settlements made by a as usury. s i l v e r , AND
certain designated
DEPOSITS OF MONEY
period. 1. GOLDSMITH- Direct
 loaningoutdep
 Seditary Bankeers of Ancestor of the ositsofmoney(
Mediteranian City- Banking as a Whole aswellastheiro
especially Venice, Geroa 2. Gold Is the use of wnmoney)
and Emphatus gave production input used also
  transfering money 1. 16th century – the first  Orato Delta Costa played
holdings from town to financial institution was organized the Role by the Obras Pias
one person to person in the Philippines to take care of in the Trade
 Trading foreign the flourishing galleon trade Alkadez Mayores – seekingly to
exchange and bullion existing between the country and aument their earnings in trading
Mexico. That institution was called local produce also relied in the
Bullion-refers to
OBRAS PIAS IN FINANCING
physical gold and silver of Obras Pias.
high purity that is often 1828 – The Spanish government,
- OBRAS PIAS – was a charitable
kept in the form of bars
foundation during the Spanish cognizant of the improving
ingots or coins.
period. The word itself means progress, granted a charter to
 Discounting Bills of works of piety in Spanish. The establish the first commercial
exchange Church directed a share of bank.
personal fortunes to its charities
4. Significant personage such as the Obras Pias.
1851 – However, it was not until
1851 that the bank named Banco
that dominated those Such credit institutions had been Espanol-Filipinostarted
times under the control of the friars, and operations. It performed general
eventually became commercial banking functions and partly
1. The Lombard jews banks or marine insurance financed foreign trade.
2. The medici family- 2ND companies.
period of Florentine Today, the bank still exists
 Capital from Pias
Financial Power bearing the name Bank of the
Catholics and its funds
3. Fuggerfamily= Philippine Islands (Banco
where loan out in interest
Greatest Money  Operate in 1820 non delas Islas Filipinas)
th
lender in 16 Century existent  Privelage on note
4. John Law's financial  Charitable Institution issue on OCT 17,
System= almost in during Spanish Period =
1854
drewer to France WORKS OF PIETY IN
SPANISH 1853 - the Banco Peninsular
COMMON REFRAME
 Funds used in Ultramarino of Madrid put up a
 Favor of royalty and the branch in the Philippines, but
 Religious
govnerment and wider stopped operations four years
 Charitable later.
power during their day
 Educational
5. PHILIPINE BANKING purposes 1869 – The opening of the Suez
 Canal led to the accessibility of the
HISTORY Some funds where
manage by European markets. British capital
 Our own past was Confraternities invested found attraction in the Philippines.
intertwined to the capital for underwritibg 1873 – the Chartered Bank of
colonization of oiur cargoes for his Galleon
India, Australia, and China
country by conlomeration Trade
established branches in the
of races  PIAS as source of country. It was followed, two years
 FROM SPANISH TO Financing in Galleon Trade later, by a branch of the Hongkong
PRSENT= BANKING which lasted for 250 yrs and Shanghai Banking Corporation.
HISTORY WITHSTAND witth nmo vessels crosiing These establishments were
THE RACES the PH and Mexico .
engaged in general banking of 1 million was 1939 - three banks
business. establihsed commenced commercial
 Also sold and both 1916 - Foreign banks dominated banking operations, namely:
drafts in exhange. the Philippine scene until 1916 Bank of the Commonwealth,
Hence it is more in the when the Philippine National Bank Philippine Bank of
category of was granted its charter. It was Communications, and the
Exhange Bank granted the privilege to issue its government-owned
rather than own notes. It was engaged in
Agricultural-Industrial Bank.
extending short-term notes to
Commercial Banks the First Philippine Commission
merchants and long-term loans to
today agriculture and industry. passed Act 52 which provided
for the examination and
1882 – The Monte de Piedad, a  Capitalize by 20 inspection of banks as an initial
savings bank, commenced million peso,
step toward the objective of
operations in 1882. internally subscribed
safeguarding the interests of
by Government little
END OF SPANISH REGIME of its is private citizens
depositors and stockholders.

1. 3 COMMERCIAL  Establish branches and  17 BANKS with the same

AND 1 SAVINGS sub-branches in the number of s Of Manila
BANK Recognizing in 1934 . Offices, 54 provincial
2. SUPERVISIPMN and capital reduces to branches . 52 Provinical
AND REGULATION MILLION PESO agencies and 1000 Sub-
WHERE
Banks established after agencies.
NEGLIGIBLE
 The mixture of Foregin and
WHERE ONLY world war 1:
Domestic Capitalization
SPANISH CIVIL
1. 1919 - the Yokohama
CODE The Bureau of Banking -
REGULATINGH Specie Bank
2. 1920 - the China which was created in 1929, had
BUSINESS
Banking Corporation the power of supervision over
3. GOV NO DEFINITE
3. 1926 - the Peoples Bank banks through the Bank
COMMITMENTS
AND and Trust Company and Commissioner. The Insular
RESPONSIBILITY the Mercantile Bank of Treasurer was thus relieved of
TO THE BANK AND China such duties.
THEIR CLIENT 4. 1937 -The Nederlandsch 1930- MARKSTONE =
Indische Handelsbank Establishment of Manila Cleaning
PH BANKING HISTORY (
opened a branch in House organized by Domestic
AMERICAN PEIOD ) Banks , Banking Industry gained
1937.
establishing and was exempted in
1906 - the Postal Savings Bank
1938 - The Philippine Bank of the banks of holiday in 1933
was created as part and parcel of
Commerce, the first private
the Bureau of Posts to inculcate the JAPANESE ERA
habit of thrift in the minds of the
bank with genuine Filipino
people, particularly those in.the capital, opened its doors for
1942 The Southern Development
low income groups. business in 1938.
Bank (Nampo Kaihatsu Ginko)
 2 Years later the agri  Bank of Taiwan aparted a
banks with capitalizing permission to operate opened a branch in Manila in 1942
branch in Manila . and acted as the fiscal
agent of the Japanese government indibvidual program of Decree No. 1801 designated the
in the Philippines expansion through Central Bank of the Philippines as
establishmebt in Manila thecentral monetary authority
Upon the liberation of Manila, the
nad established Linkage in
banks operating in the Japanese 1987 - 1987 Constitution
imroving services ro the
occupation were unable to reopen adopted aimed at essentially at
general public.
for business. . Banks, therefore, establishing an independent
turned toward government aid. 1948 - the General Banking monetary authority through
Act was passed into law. It increased capitalization and
Presidential directive, greater private sector
provided the definitive rules of
Executive Order 96 - conduct for all banking institutions representation in the Monetary
invalidated all Japanese as to organization, management, Board.
occupation deposits. Wartime and operation.
payments on bank loans with scrip
money Nwere, however, declared 1949 - Republic Act No. 265, PH BANKING TODAY
valid by the courts. otherwise known as
Republic Act 11211 the
Executive Order 48 - on the theCentral Bank Act, was
passed. Justification of the Bangko
New Central Bank Act of
other hand, paved the way for the
Sentral's existence today may be 2019
reopening of the prewar banks.
traced to the two attendant
The first license was given to the  SiGNED BY Duterte Feb
problems of the
National City of New York and 14, 2019
several others followed suiT. Philippine postwar period. 1. Enhances corporate
1945 - Commonwealth Act viability and
1. the adjustment of the
independence
725 was approved which enabled transition from a colonial
raw-material-producing  Increasing capital from
domestic banks to reopen in March
1946. economy to that of an 50 billion to 200 billion
agroindustrial economy pesos
 Act provided asa sum of 10 2. how to gear the resources  Funding came from
million ti rehabilitaoin the of the banking system to declared dividends of
domestic banks though the major economic BSP in the National Gov
gov subs of the prefereed objective
1946 - the Postal Savings 1972 - Presidential Decree 2. Include employment
Bank boasted of added facilities No. 72 wasissued, amending in its primary
in cities, provinces, and Republic Act No. 265 tokeep it objective
municipalities. attuned with changing economic  Maintain price
conditions. It emphasized the stability to
1947- The Rehabilitation maintenance of domestic and conducive balanc
Finance Corporation was international monetary stability as e and sustainable
created by virtue of Republic Act 85 the Central Bank's primary
growth of
on 2 January 1947. Its main objective and expanded its
economy
objective was the rehabilitation of authority to include the
the war-ravaged country, as well as supervision of the bankingsystem 3. restoresBSP's
to step up economic development. and the regulation of the entire authority to issue debt
financial system. papers
 Bank of America granted
permission to do missery 1973 - With the 1973
in Manila . Launched Constitution, Presidential
 4. widens thecoverage o activities of these banks are over commu network .
finstitutions under subject to supervision of the Such as internety and
BSP supervision Bangko Sentral ng Pilipinas (the participantsina network.
 include money central bank of the Republic of
the Philippines). As of February 2009
services and
create grabnting Technology has brought us  6,455 banks that
business and ebanking, the provision of operated with
payment system banking services (deposit taking, automated teller
operation payments, mortgages, and machines, broken down
other financial services sold by as follows:
5. BSP incomederived banks) over the Internet or other 1. 6,455 universal and
from it sgovernmental electronic networks. commercial banks
functions will be 2. 748 thrift banks
THE INSTRUMENTS OR 3. 83 rural and
exempt from taxes.
DEVICES USED TO PROVIDE cooperative banks
Republic Act No 7653 E-BANKING SERVICES ARE 4. However, only 92
CALLED E-MONEY. banks offered
Republic Act No. 7653, or the
electronic banking
New Central Bank Act of 1993,
E-money can be divided services
governs Philippine banking
today. into three groups:
E-banking is regulated by
 It provides for the 1. Access devices four main BSP prescribed
establishment of a = allow people to prudential guideline
independent monetary withdraw deposit , cash
 Circular No. 240 (2000)
authority to be know as transfer funds and pay
 Memorandum to All
the Bangko Sentral ng bills from other banks
Banks (19 June
Pilipinas (BSP accounts withouth
 2000)
pysically going to the
AS OF NOVEMBER 2018  Circular Letter (8 August
bank or pay ac heck.
2000)
 43 universal and 2. Cardbased products  and Circular No.269
commercial banks, = stored value and (2000)
 57 thrift banks prodcts .
 492 rural banks = PREPAID CARDS Significant legislation passed
 40 credit unions which funds are stored into law that govern the
 6,267 non-banks with in a nelectirnic form in a present Philippine banking
quasi-banking compu or intergrated in system.
 functions in the the cards.
Philippines. REPUBLIC ACT 8791
3. Prepaid software
Provided under Section 4 products or network  May 23 2000
of Republic Act No. 8791 money  provides the
otherwise known as “The = Involve funds that are regulation of the
General Banking Law of stored in electronic form General banking law of
2000” , the operations and or device that hardisk of 2000 insitutionalize a
the comp and transfer
 certain man of reforms in to adopt international AND PROSECUTORS
the PH provides the y accepted standards INVOLVED IN MONEY
regulation and org of the LAUNDER
banks ans quasi banks and 5. Application of
trust entities. 5 notable features of Anti-
firprper rule
 Empowered to Money Laundering Law
organization and operations
of banks, quasi-banks, and disqualify renowed 1. Criminalizing Money
trust entities. or suspend a diretor Laundering
or officer of ar acts
MORE IMPORTANT FEATURES and commits that is 2. Estblishment of a system
OF NEW LAW unfit for the positoin covered transaction reporting

1. Greater foreign 3. Creation of Anti Money

participationin the 6. Grant of authority to Laundering Council
system,thus inducing the BSP to regulate
4. Amendment of the Bank
competition electronic banking secrecy Law
 ACQUIRE 100 % of  To ensure adequate
protected of banks 5. Insitutions of procedures
voting stock can be
depositors and and arrangements
done by foreign
banks of the existing other clients
Commercial Banking
banks ( 7yrs) Republic Act 9160 Anti- Industry
2. Three-year Money Laundering Act of
moratorium on the core of the banking
2001
establishment of industry
commercial banks  SEPT 29,2001  the country is steadily
moving to a scenario in
Concealment ( action of
3. Stricter rules which there are fewer but
hiding somehging or more financially powerful
governing hank
preventing something fror main banks that are better
exposure to directors,
being known) of the origin of able to compete in a
officers, stockholders, borderless world
obtained money
and related interests
(DOSRI). =SEC 2 PROTECT AND On 19th of April 2000, the
PRESERVE THE INTERGRITY Monetary Board approved
 DOSRI is expanded AND CONFIDENTIALITY OF the issuance of Circular No. 237
to include BANKS ACCOUNTS AND TO (Section XI 12 of the Manual of
investment of the Regulations for Banks and Section
ENSURE THE PH SHOULD
4112 of the Manual of Regulations
bank in enterprises NOT BE USED AS MONEY for Non-Bank Financial
own and controlled LAUNDERING SITE FOR THE Institutions)
said by the dosri .
PROCEEDS OF ANY
Monetary board can
UNLAWFUL ACTI
Bank mergers and
define related term Consolidation
interest. THE STATE SHALL
4. Grant of authority EXTENTION COOP IN THE 1. Merger
tothe Monetar Board TRANSACTIONAL INVESTI
absorption of one or more The entry of foreign banks in the kinds including retail banks,
corporations by another Philippines through the commercial or corporate banks,
existing corporation establishment of Branches shall be and investment banks.
governed by the provisions of the
 retains its identity and Foreign Banks Liberalization Act =regulated by the national
takes over the rights, government or central bank.
privileges, franchises, SEC. 73. ACQUISITION OF
and properties, and VOTING STOCK IN A WHAT IS BANK ?
assumes all the DOMESTIC BAN Section 3. Definition and
liabilities and
Within seven (7) years from the Classification of Banks.
obligations of the
effectivity ofthis Act and
absorbed corporation(s 3.1. "Banks" shall refer to
subject to guidelines issued
entities engaged in the
pursuant to the Foreign Banks
2. Consolidation lending of funds obtained in the
Liberalization Act, the
union of two or more Monetary Board may authorize form of deposits.
a foreign bank to acquire up to
corporations into a single Nature of BANKING
one hundred percent (100%) of
new corporation, i.e., Business
the voting stock of only one (1)
consolidated corporation
bank organized under the laws
 "a bank makes money
 consolidatedcorporatio of the Republic of the Ph
out of other people's
n shall thereupon and
SEC. 74. LOCAL BRANCHES money
therefter possess al the
OF FOREIGN BANK  the bank is said to
liabilities and
"trade on the equity."
obligations of each Philippines
 Trust and confidence,
constituents
In the case of a foreign bank futurity and risk are the
corporations
which has more than one (1) basic elements of credit
BANKING branch in' the Philippines, all transactions.
such branches shall be treated  The bank, by giving
DEREGULATION as one (1) unit for the purpose loans, receives interest,
of this Act, and all references to which becomes its
SEC. 11. FOREIGN STOCK
the Philippine branches of income from the
HOLDING foreign banks shall be held to business of banking.
Foreign individuals and non- refer to such units This does not mean,
bankcorporations may own or however, that the bank
Perspective on Bank or takes advantage of the
control up to forty percent
(40%) of the voting stock of a Banking depositor's money for it
domestic bank. This rule shall is one institution that
=an institution which deals
apply to Filipinos and domestic can be a debtor and a
primarily in the receipt of
non-bank corporations. creditor at the same
deposits and the loaning out of
time.
funds.
SEC. 72. TRANSACTING
BUSINESS IN THE =provides financial services Two Basic PRINCIPLE
PHILIPPINES such as wealth management,
1. First Principle
currency exchange, and safe
deposit boxes has different
=States that a certain amount organized by the state and 4. TRUST COMPANY
deposited will support several sometimes has a minimum of
an institution which deals in
times as much in credit private ownership
fiduciary activities such as
=known as the partial reserve EX, LANDBANK administrator of estates,
system its origin dates back to guardian of minors' interest,
3. DOMESTIC
the time when precious metals executor of last wills
like gold were entrusted to incorporated under the laws of andtestaments, registrar and
goldsmiths for safekeeping the Philippines, it is a domestic transfer agent of stocks and
bank. bonds, and similar
=its influence is still felt in the
commercial banking system as 5. SAVINGS BANK
well as its application
Follows thatmajority of the primarily receives for
=the central bank imposes a stocks are owned by Filipinos in safekeeping funds from
legal serve on deposit liabilities conformity with the Philippine persons
of all banks to control the credit Corporation Code
who have no immediate need
operations of the banking
Ex. PNB for cash and invests these funds
system
in long-term investments.
4. FOREIGN BANK
2. SECOND PRINCIPLE 6. RURAL BANK
incorporated under the laws of
= states that a greater portion another country follows the organized primarily to cater to
of deposits in commercial pattern of incorporation in the the needs of small farmers,
banks arises out of the country to which the owners small businesses, small cottage
proceeds of loans a borrower owe allegiance industries, and cooperative
may simply arrange to have the associations.
loan proceeds turned into a EX. CIMB BANK
deposit after his loan 7. DEVELOPMENT BANK
( AS TO STRUCTURE )
application is duly processed takes care of giving loans to be
and approved 1. STOCK CORPORATION used for developing the
=the bank simply creates an sell shares of stock to the economy and may therefore
asset against a liability general public to raise capital engage in medium and long-
term lending.
=this is the situation where a 2. NON STOCK CORPO
bank becomes a creditor and
debtor at the same time the organization is on a 8. COOPERATIVE BANK
membership basis for mutual
TYPES OF BANKS organized to furnish the credit
benefits and service rather than
needs of duly registered and
 AS TO OWNERSHIP for profit.
operating cooperative
1. PRIVATELY OWNED AS TO FUNCTION AND associations of different kinds.
organized and capitalized LINE OF DEVELOPMENT 9. INVESTMENT BANK
By private citizens for their
3. COMMERCIAL BANK assists governmentbodies and
profit
one that receives demand newly organized corporationsto
Ex: BDO PRIVATE BANK raise funds forcapital through
deposits and gives out short-
2. PUBLICLY OWNED term loan the sale of stocks and bonds
10. CENTRAL BANK MOMENTARILY IN The state does not only
NEED OF THEM Supervise banks, but with the
a bank of banks, as itdoes not
5. IN ALLOWAING THE advent of central banking, it
deal directly with the public the FLOW OF CREDIT, also controls the banks'
supervisory and regulatory FUNDS THE BANK operations.
agency BECOMES
SIGNIFICNAT IN THE The following are some o the
AS TO MANAGEMENT ECONOMY BECAUSE reasons why the state
1. UNIT BANK THEY CAN CREATE supervises and controls
MONEY OUT OF LOAN
ownership is PROCEEDS
banks:

concentrated on one 6. GIVE EXPERT ADVISE

TO BUSINESSMEN , 1. THE BANKS ARE ENTRUSTED
corporation which does
THE BANK MAY WITH OTHERS PEOPLE MONEY
banking business independent CONTRIBUTE TO THE
of others SUCCESS OR =Their mismanagement or
2. GROUP BANKING FAILYTURE OF THE malfeasance in the duties of
COUNTRY AS A WHOLE the board of directors will
a majority portion of the stocks 7. THEY CONTRIBUTE TO result to banking failure
of two or more banks are held WISE DECISIONS AND
by a holding company PROPER INCENTIVES 2. THE STATE WANTS TO
IN BUSINES AND ASSURE THAT THE BANKS WILL
3.BRANCH BANKING TRADE PERFORM THEIR FUNCTIONS
where there is a head office 8. WITHOUT BANKS IN THE BEST INTEREST OF
and two or more branches FOREIGN TRADE THEIR CLIENTS THROUGH THE
WOULD STAGNATE OR HONEST AND EFFICIENT
4. CHAIN BANKING PERHAPS NOTY FLOW CONDUCT OF THEIR
SMOOTHLY FUNCTIONS
one or more persons control
the activities of banks
9. THE MAJOR LINK
BETWEEN INTER =The state must be vigilant in
BUTYER S AND order to forestall any
ECONOMIC
SELLERS ARE THE misconduct or inefficient
SIGNIFICCANCE OF BANKS BANKS banking method
1. FACILITATE TRADE 10. INTERNATIONAL 3. THE BANKS MAY EITHER
TRANSCATION TRADE NECCESITIES
ABUSE THEIR POWER OR USE
PARTICULARY CREDIT THE LETTER S OF
THEM PRUDENTLY
TRANSACTION CREITD AND
ACCCETANCE WHIHCH
2. FACILITATE THE =Since in the modern economic
BANKS HANDLES WITH
DEALISNG BETWEEN affairs, banks tend to direct the
THE GREATEST CARE
DEBTORS AND course of progress or
DUE TO THEIR
CREDITORS otherwise, the state stands
WEALTH EXPERIENCE
3. ALLOWS OTHERS THE IN DEALINGS ON guard in order that banks will
USE OF OTHERWISE CREDIT. exercise their power with the
IDLE FUNDS OF THE necessary prudence.
COMMU IS PRODUCTVE WHY THE STATES
ACTIVITIES SUPERVISE BANKS 4. THE BANKS, FURTHERMORE,
4. LEND FUNDS TO ARE QUASI-
THOSE WHO ARE PUBLICCORPORATIONS AND AS
IN ALL OTHER CORPORATIONS OF =The banking sector was badly hit Republic Act 7721
THIS CALLING, THE STATE MUST by the recession-depression, with
EXERT ITS RESTRAINING the Philippines’ banks unable to Allowed the entry of foreign
INFLUENCE TO SAFEGUARD THE issue letters of credit on behalf of banks through any of the three
WELFARE OF ITS CONSTITUENTS. the country’s importersexporters. modes:
(1) acquisition, purchase or
=In the granting of a charter to Unable to service its debt, the
ownership of up to 60 per cent of
a corporate entity, the state is government was forced to
the voting stock of an existing
one of the parties whose duty negotiate For a debt service
domestic bank,
is to protect the interest of the moratorium.
citizens. (2) investment in up to 60 percent
The economy normalized only in
of the voting stock of a new
thesecond half of the 1980s, after
banking subsidiary incorporated
the 1986 People Power Revolt
The Bank Liberalization under the laws of the Philippines,
installed Corazon C. Aquino as the
(3) through the establishment of
The Philippine commercial new President.
a Philippine branch with full
banking sector has been =The Corazon Aquino banking authority.
opened to competition, both Administration also tried to
local and overseas, largely strengthen the financial system.
The Philippines happened to
through a series of be bullish in 1994. The country
=The huge liabilities accumulated registered high GDP growth in
governmentinitiated
by the two government banks – 1994-97, which also saw the
liberalization measures.
Philippine National Bank (PNB)
rapid liberalization of the
In the post-war era (1940s- and Development Bank (DBP) –
banking and other sectors of
were transferred to the
1960s), the sector catered the economy. This growth was
government and became part of
largely to the domestic market rudely interrupted by the 1997-
the bigger national debt.
and had limited role in the 98 Asian financial contagion
foreign exchange market =Subsequently, the PNB, then the that originated from Thailand.
country’s premier bank, was put
However, compared to the
1970s - The government on the privatization auction block.
1980-85 financial crisis, the
allowed foreign financial
1994 - the Philippines Philippine financial sector
institutions to set up offshore
passedRepublic Act (RA) 7721, survived this new crisis without
banking units while the
which liberalized the entry and any major bank closures.
commercial banks were
scope of operations of foreign
authorized to accept foreign
banks.
currency deposits. REPUBLIC ACT 10641
As a backgrounder, no foreign
Early 1980s - The anti-usury bank had been allowed entry Foreign banksare given equal
law became obsolete with the under the 1948 General treatment to that accorded
deregulation of interest rates. domestic banks as they:
Banking Act, except the four
1980-83 - The Philippine foreign banks licensed during the  shall perform the same
economy was in recession; in Spanish and American colonial functions
periods, namely: Hong Kong
1983-85, the recession became  enjoy the same
Shanghai Bank, Citibank, Standard
a full-blown depression, with privileges be subject to
Chartered Bank, and Bank of
the economy registering the same limitations
America.
negative GDP growth imposed upon a
 Philippine bank of the capital required for 1. TAIWAN
Similarly, domestic banks of the
same category.  Hua Nan Commercial
Domestic banks under the new Bank Ltd
3. A foreign bank branch
law also enjoy same category  Cathay United Bank
is now allowed to open
up to five sub-branches  Yuanta Bank
“Any right, privilege or
 First Commercial
incentive granted to foreign
Foreign banks that are  Bank
banks or their subsidiaries
 Chang Hwa Bank
or affiliates. authorized to do:  Commercial Bank Ltd
Allows foreign banks to  Banking business in the
2. KOREA
operate within the Philippines through any of the
 Shinhan Bank
Philippine banking system three modes of entry shall be
 The industrial Bank
by: allowed to bid and take part in
of Korea
foreclosure sales of real
 Woori Bank
property mortgaged to them,
(1) acquiring, purchasing, or as well as to avail of 3. JAPAN
owning up to 100 percent of enforcement and other
proceedings, and accordingly  Sumitomo Mitsui of
the voting stock of an existing Japa
bank take possession of the
mortgaged property, for a 4. SINGAPORE
(2) by investing in up to 100 period not exceeding five years
percent of the voting stock of a from actual possession.  United Overseas
new banking subsidiary Bank Ltd. Of Singapore
incorporated under Philippine Proponents of the law justify
laws the opening of the banking 5. MALAYSIA
industry to more established
(3) by establishing branches foreign banks on various  CIMB Bank of Malaysia,
with full banking authority. reasons, but collectively the 6. CHINA
economic benefits it will bring
But foreign banks can
and the strengthening of the  Beijing-based Industrial
operate in the Philippines and Commercial Bank of
financial system in the country.
only through any one of
China (ICBC)
these three modes of entry. 2019 - more foreign banks
(namely three banks from The BSP allowed 13
Aside from the increase in
South Korea, Indonesia, and foreign banks to establish
the allowed foreign Hong Kong) are looking at representative or liaison
ownership, RA 10641 also establishing their presence in offices in the country
amends: the Philippines.
1. State Bank of India
1. Capital requirement for 2. Ogaki Kyoritsu Bank Ltd
foreign branches. The BSP allowed 12 3. Wells Fargo Bank
2. The law requires that foreign banks to open 4. Korea Development
the minimum capital
branches in the Bank
amount should not be 5. Bank of Singapore Ltd.
less than the minimum
Philippines:
6. DBS Bank Ltd
 7. Japan Bank for
International
Cooperation
8. Rothschild (Singapore)
Ltd.
9. The Bank of New York
Mellon
10. Korea Eximbank
11. UBS AG
12. Zurich-based Credit
Suisse
13. Bank of Taiwan.

The effect of foreign bank

entry in
the Philippines:
A. ADVANTAGES
a. Increased Competition
b. Lower operating expenses
due to increased efficiency
c. Lower interest rates offered
to the ipublic
d. Lower Interest related
income
e. Banks with High political
influence will tend to close
due to competition
f. Non-lending activities like
cost optimization and seeking
for greater efficiency would
keep managers busy

B. DISADVANATAGES
A. Accounting profits would
decline

C. RISKS
a. Profit volatility
b. Encourages underwriting of
riskier loans