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PART III: COMMERCIAL BANKING

7.1. Banks as Business Firms

What is Business Banking?

- Business banking is a company's

financial dealings with an institution that
provides business loans, credit, and
savings and checking accounts specifically
designed for companies instead of
individuals.
- Business banking occurs when a bank,
or division of a bank, only deals with
businesses. A bank that deals mainly with
individuals is generally called a retail bank, while a bank that deals with capital markets
is known as an investment bank.
There are some banks that also deal with all three kinds of clients.
- Business banking may also be called commercial or corporate banking. Banks provide
financial and advisory services to small and medium business as well as larger
corporations. These services are tailored to the specific needs of each business.
These services include deposit accounts and non-interest-bearing products, real
estate loans, commercial loans, and credit card services.
Services Offered by Business Banks
1. Bank Financing

Bank financing is a primary source of capital for business expansion, acquisitions,

and equipment purchases, or simply to meet growing operating expenses. Depending
on a company's needs, business banks can offer fixed-term loans, short- and long-
term loans, lines of credit, and asset-based loans. Banks provide equipment financing,
either through fixed-loans or equipment leasing. Some banks cater specifically to
certain industries such as agriculture, construction, and commercial real estate.
2. Cash Management

Also referred to as treasury management, cash management services help

businesses achieve greater efficiency in managing their receivables, payables, cash
on hand, or liquidity. Business banks set up specific processes for businesses that
help streamline their cash management, resulting in lower costs and more cash on
hand.

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Types of Investment Banks
9 major financial institutions
1. Central Banks

Central banks are the financial institutions responsible for the oversight and
management of all other banks. In the United States, the central bank is the Federal
Reserve Bank, which is responsible for conducting monetary policy and supervision
and regulation of financial institutions.
2. Retail and Commercial Banks

Traditionally, retail banks offered products to individual consumers while

commercial banks worked directly with businesses. Currently, the majority of large
banks offer deposit accounts, lending and limited financial advice to both
demographics.

Products offered at retail and commercial banks include checking and savings
accounts, certificates of deposit (CDs), personal and mortgage loans, credit cards,
and business banking accounts.
3. Internet Banks

A newer entrant to the financial institution market are internet banks, which work
similarly to retail banks. Internet banks offer the same products and services as
conventional banks, but they do so through online platforms instead of brick and
mortar locations. (For related reading, see: The Pros and Cons of Internet Banks.
4. Credit Unions

Credit unions serve a specific demographic per their field of membership, such as
teachers or members of the military. While products offered resemble retail bank
offerings, credit unions are owned by their members and operate for their benefit.
5. Savings and Loan Associations

Financial institutions that are mutually held and provide no more than 20% of total
lending to businesses fall under the category of savings and loan associations.
Individual consumers use savings and loan associations for deposit accounts,
personal loans, and mortgage lending.
6. Investment Banks and Companies
Investment banks do not take deposits; instead, they help individuals, businesses
and governments raise capital through the issuance of securities. Investment
companies, more commonly known as mutual fund companies, pool funds from

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individual and institutional investors to provide them access to the broader securities
market.
7. Brokerage Firms

Brokerage firms assist individuals and institutions in buying and selling securities
among available investors. Customers of brokerage firms can place trades of stocks,
bonds, mutual funds, exchange-traded funds (ETFs), and some alternative
investments.
8. Insurance Companies

Financial institutions that help individuals transfer risk of loss are known as
insurance companies. Individuals and businesses use insurance companies to
protect against financial loss due to death, disability, accidents, property damage,
and other misfortunes.
9. Mortgage Companies

Financial institutions that originate or fund mortgage loans are mortgage

companies. While most mortgage companies serve the individual consumer market,
some specialize in lending options for commercial real estate only.

Retail Banking VS Corporate Banking

Retail banking refers to the division of a bank that deals directly with retail
customers. They bring in the customer deposits that largely enable banks to make loans
to their retail and business customers.

Corporate banking, also known as business banking, refers to the aspect of

banking that deals with corporate customers. They make loans that enable businesses to
grow and hire people, contributing to the expansion of the economy.

7.2 Balance Sheet of a Commercial Bank

Commercial bank's balance sheet proves a picture of its functioning. It has two
main sides i.e. the liabilities (on the right side) and the assets (on the left side). It reflects
bank credit extension on its asset side in loans and investments, and on the liabilities side
reflects the bank’s operations as an intermediary in time deposits and its role as an
element in the nation’s monetary system in demand deposits.
Form of Balance Sheet

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Distribution of Asset - the assets of a bank are those items from which it receives
income and profit.

Cash - consisting of coins and currency notes lying in reserve with it and in its branches.
This is a certain percentage of its total liabilities which it is required to keep by law. Cash
reserves do not yield income to the bank but are essential to satisfy the claims of its
depositors.

Central bank and other banks - The commercial banks are required to keep a certain
percentage of their time and demand deposits with the central bank. They are the assets
of the bank because it can withdraw from them in cash in case of emergency or when the
seasonal demand for cash is high.

Money at call and short notice - relates to very short-term loans advanced to bill
brokers, discount houses and acceptance houses. They are repayable on demand within
fifteen days. The banks charge low rate of interest on these loans. The fourth item of
assets relates to bills discounted and purchased.

Bills and Securities discounted - The bank earns profit by discounting bills of exchange
and treasury bills of 90 days duration. Some bills of exchange are accepted by a
commercial bank on behalf of its customers which i ultimately purchases. They are a
liability but they are included under assets because the bank can get them rediscounted
from the central bank in case of need.

Investments by the bank - in government securities, state bonds and industrial shares,
yields a fixed income to the banks. The bank can sell its securities when there is need for
more cash.

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Loan advances and cash credits and overdrafts - the most profitable source of
bank assets as the bank changes interest at a rate higher than the bank rate. The bank
makes advances on the basis of cash credits and overdrafts and loans on the basis of
recognized securities.

Liabilities of Customer for Acceptances. Endorsements and other Obligations - the

bank has accepted and endorsed on their behalf. They are the assets of the bank because
the liabilities of customers remain in the custody of the bank. The bank charges a nominal
commission for all acceptances and endorsements which is a source of income.

Property, Furniture, Fixtures less Depreciation - the value of permanent assets of the
bank in the form of property, furniture, fixtures, etc. They are shown in the balance sheet
after allowing for depreciation every year.

Profit and Loss - includes profits retained by the bank after paying corporation tax and
profits to shareholders.

Distribution of Liabilities - the liabilities of commercial banks are claims on it. These are
the items which form the sources of its funds.

Share capital - contributed by its shareholders and is a liability to them.

Reserve fund - consists of accumulated resources which are meant to meet

contingencies such as losses in any year. The bank is required to keep a certain
percentage of its annual profits in the reserve fund. The reserve fund is also a liability to
the shareholders.

Deposits - are the debts of the bank to its customers. They are the main source from
which the bank gets funds for investment and are indirectly the source of its income. By
keeping a certain percentage of its time and demand deposits in cash the bank lends the
remaining amount on interest.

Borrowings from other banks - the bank usually borrows secured and unsecured loans
from the central bank. Secured loans are on the basis of some recognised securities, and
unsecured loans out of its reserve funds lying with the central bank.

Bills payable - refer to the bills which the bank pays out of its resources.

Bills for collection - these are the bills of exchange which the bank collects on behalf of
its customers and credits the amount to their accounts. Hence it is a liability to the bank.

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Acceptance, endorsement and other obligation - These are the claims on the bank
which it has to meet when the bills mature.

Contingents liabilities - relate to those claims on the bank which are unforeseen such
as outstanding forward exchange contracts, claims on acknowledge debts, etc.

Profit and loss - shown profits payable to the shareholders which are a liability on the
bank.

7.3 The Sources of Bank Funds

Deposits
The major source of funds for commercial banks is saving. Deposits are gathered
in local markets and typical have lower interest rate. Deposits can be classified as
demand deposit (current deposits), etc. In case of demand deposits, the sources of funds
are simply checking account that do not pay interest and permit unlimited check writing.
Saving deposits are interest bearing sources of fund left with the banks for a period
of weeks, month, or years with no minimum required maturity. Money market deposits
account can pay whatever interest rate the offering bank feel is competitive and have
limited check writing privileges attached. No minimum denomination or maturing is
required by law. A time deposit is simply a deposit account that pays interest for fixed
term and the fund cannot be withdrawn before maturity.

Liabilities Management
Another important source of fund for commercial bank is liabilities management.
They have to manage it very carefully to minimize risk and achieve goal. The various
items included in the liabilities of commercial banks are equity, reserves, borrowings,
deposits, new account, money market liabilities, deposit account, wholesale and retail
certificate of deposits, negotiable instructs, brokered deposits, interest paying liabilities,
short term loan, bills payable and other outstanding expenses.

Repurchase agreement
This represents the temporary borrowing in money market, mainly from excess
required reserves loaned to it by other banks or the bank has borrowed fund collateralize
by some of its own securities from other bank or a large corporate customer.

Mortgage loans
Long term loans taken generally for constructing building and building under
construction serves as collateral are mortgage loans. The principal source of long term

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borrowing include real estate mortgage and this type of loan may have maturity up to
thirty years.

Capital funds
It refers to the long term funds contributed to a bank primarily by its owners. It
represents the owner's equity interest in the bank. From the regulator point view, bank
capital is divided into two groups - tier 1 and tier 2 capital. Tier 1 capital is known as core
or primary capital and tier 2 capital is known as supplementary capital. Under this fund
includes common stocks, suppliers, retained earnings and undivided profit.

7.4. Bank Investments and Cash Assets

Bank Investments

A special segment of banking operation that helps individuals or organizations

raise capital and provide financial consultancy services to them.

 Bank savings accounts have traditionally been one of the simplest and most
convenient ways to save. These accounts typically have the lowest minimum
deposit requirements and the fewest withdrawal restrictions. But they often pay
the lowest interest rates of any of the savings alternatives.
 Money market accounts are similar to savings accounts, but may pay higher
interest rates. However, they tend to have higher balance requirements than
savings accounts, and different interest rates may apply to different account
balances.
 Money market mutual funds are similar to money market accounts in some
ways. They typically pay interest at about the same rate and many offer check-
writing privileges. One advantage is that there's usually no limit on the number
of checks you can write each month.
 UITF (Unit Investment Trust Fund) is a curated investment fund managed by
experts to ensure high yield and quality returns. It’s the perfect investment
option if people don’t have the time or knowledge for actual stock trading
because it lets experts manage their investments through securities, bonds,
equities, and other best-in-class instruments.
 Certificates of deposit (CDs) are time deposits. When you choose a CD, the
bank accepts your deposit for a fixed term—usually a pre set period from six
months to five years—and pays you interest until maturity. At the end of the
term you can cash in your CD for the principal plus the interest you've earned,
or roll your account balance over to a new CD. CDs are less liquid than savings
accounts.

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Cash Assets

The sum of all coins, currency and other unrestricted liquid funds that have
been placed on deposit with a financial institution. Cash at bank is considered a
highly liquid form of current asset, and when reported on a business' balance
sheet, it is combined with cash in hand for accounting purposes.

7.5. Bank Loans

- A bank loan is the most common form of loan
capital for a business. A bank loan provides
medium or long-term finance. The bank sets the
fixed period over which the loan is provided (e.g.
3, 5 or 10 years), the rate of interest and the
timing and amount of repayments.

Any loan you get from a bank will require you to sign
a contract, called a loan agreement, promising to pay
back the money. The contract will spell out the specific
conditions, or terms, of the loan. These include:
 The principal, or the amount you're borrowing.
 The interest rate the bank will charge on the loan.
 Whether you are offering any collateral for the loan. Collateral is property that the
bank can seize if you fail to repay the loan. With mortgages and auto loans, the
collateral is usually the home or car that you borrowed the money to buy.
 The repayment schedule. Usually, you'll make a series of payments over time,
with each payment made up partially of principal and partially of interest. The
repayment schedule could cover just a few months or years, as with a personal
loan, or it could last for decades, as with a home mortgage.

Types of Bank Loans

Fixed Rate Loans

 Fixed-rate loans are among the most common consumer loans.

 Fixed-rate loans keep the same interest rate throughout the life of the loan.
 The interest rate on fixed-rate loans may be slightly higher in most cases than a
variable-rate loan.
 The advantage of a fixed-rate loan, especially in the case of a home mortgage, is
that your payment stays the same throughout the repayment term except for slight
variations.
Variable Rate Loans

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 Variable-rate loans have interest rates that fluctuate depending on the market rate
or “prime” rate. With a variable interest rate, the amount you pay on your home
loan, car loan or student loan can vary each month.
 Variable interest rates are usually lower than fixed rates, which make them
attractive to first-time homebuyers or those wishing to refinance a loan.
 Using a variable-rate mortgage to save money in the beginning and then switching
to a fixed rate when market rates begin to go up is a common loan management
strategy.
Installment Loans

 An installment loan is one that is repaid in equal amounts over a certain period of
time. Repayment periods for installment loans can range from six months to 30
years.
 A home mortgage or auto loan can be considered a type of installment loan.
 Installment loans have very specific repayment terms, including a starting date, an
ending date, and the amount of interest you will pay over the life of the loan.
Secured Loans

 A secured loan is one backed up by collateral, such as a house or a car.

 In the event that the homeowner defaults on the loan, the bank has the right to
take the house.
 The most common secured loans are home mortgages, home equity loans, auto
loans, boat loans and business loans.
Unsecured Loans

 Unsecured loans require no collateral. These loans are usually offered to

individuals with very good credit scores.
 The interest rates for unsecured loans are typically very high and usually
correspond to a person’s credit score; the higher the credit rating, the better the
interest rate.
 Examples of unsecured loans include bank credit cards or other personal lines of
credit.
Convertible Rate Loans

 Convertible rate loans can be changed from one type of loan to another throughout
the life of the loan.
 Convertible rate loans are usually home mortgages that begin as a variable rate
and then change to a fixed rate after a period of time.
 Small business owners often use convertible loans for startup costs and then
convert the business loan to a fixed-rate secured loan.
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7.6. Others Services Offered

Aside from the primary products and services that the
commercial banks provide, the following may be included as
their additional services:

 Discounting of Bill of Exchange - banks purchase bill of

exchange from holder in discount after making some marginal
deduction in the form of commission. The banks pay the
deducted value to the holders when traders discount it into
bank.
 Cheque Payment - banks provide cheque pads to the
account holders. Account holders can draw cheque upon bank to pay money. Banks pay
for cheques of customers after formal verification and official procedures.
 Remittance - remittance is a system, through which cash fund is transferred from one
place to another. Banks provide the facilities of remittance to the customers and earn
some service charge.
 Collection And Payment of Credit Instruments - In modern business, different types of
credit instruments such as bill of exchange, promissory notes, cheques etc. are used.
Banks collect and pay different types of credit instruments as the representative of the
customers.
 Foreign Currency Exchange - banks deal with foreign currencies. As the requirement of
customers, banks exchange foreign currencies with local currencies, which is essential to
settle down the dues in the international trade.
 Consultancy - banks hire financial, legal and market experts, who provide advices to
customers in regarding investment, industry, trade, income, tax etc.
 Bank Guarantee - when customers have to deposit certain fund in governmental offices
or courts for specific purpose, bank can present itself as the guarantee for the customer,
instead of depositing fund by customers.

7.7 Bank Funds Management

Bank "funds management" is the key to short-to-intermediate decision making in
the dynamic and banking environment. Includes all policies and approaches designed to
obtain funds from deposits and borrowings and to allocate them to loans and investments.
Emphasis: funds over which management has discretionary control.

Thus, the concept of funds management may be thought of as incorporating two major
systems-oriented approaches:

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(1) Dynamic balance sheet management -- Balance Sheet Management is the
process of planning, coordinating, and directing business activities that directly
determine the Assets, Liabilities, and Equity of a company.
(2) Asset/liability management -- application of deterministic, computer-based
financial planning models to funds management in a short-term context.

Asset/liability management is the primary focus of bank funds management today.

The essence of asset/liability management is to coordinate the interrelationships between
the sources and uses of funds in short-term financial planning and decision making.
Asset/liability management is the process of managing the use of assets and cash
flows to reduce the firm’s risk of loss from not paying a liability on time. Well-managed
assets and liabilities increase business profits. The asset/liability management process is
typically applied to bank loan portfolios and pension plans.

The concept of asset/liability management focuses on the timing of cash

flows because company managers must plan for the payment of liabilities. The process
must ensure that assets are available to pay debts as they come due and that assets or
earnings can be converted into cash. The asset/liability management process applies to
different categories of assets on the balance sheet.
Therefore, this approach suggests maximize returns and minimize costs.

Two other approaches are often associated with funds management: interest rate
forecasting models and specific application management science models. These models
are designed to solve specific banking problems and/or are incorporated in more general
approach to funds management.

7.8. Required Reserves for a Commercial Bank

A bank reserve is the currency deposit that is not lent out to the bank's clients. A
small fraction of the total deposits is held internally by the bank in cash vaults or deposited
with the central bank. Minimum reserve requirements are established by central banks in
order to ensure that the financial institutions will be able to provide clients with cash upon
request.

The New Central Bank Act (RA 7653)

ARTICLE VII - BANK RESERVES
SECTION 94. Reserve Requirements. — In order to control the volume of money
created by the credit operations of the banking system, all banks operating in the
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Philippines shall be required to maintain reserves against their deposit liabilities:
Provided, That the Monetary Board may, at its discretion, also require all banks and/or
quasi-banks to maintain reserves against funds held in trust and liabilities for deposit
substitutes as defined in this Act. The required reserves of each bank shall be proportional
to the volume of its deposit liabilities and shall ordinarily take the form of a deposit in the
Bangko Sentral. Reserve requirements shall be applied to all banks of the same category
uniformly and without discrimination.

Reserves against deposit substitutes, if imposed, shall be determined in the same

manner as provided for reserve requirements against regular bank deposits, with respect
to the imposition, increase, and computation of reserves.

The Monetary Board may exempt from reserve requirements deposits and deposit
substitutes with remaining maturities of two (2) years or more, as well as interbank
borrowings.

Since the requirement to maintain bank reserves is imposed primarily to control

the volume of money, the Bangko Sentral shall not pay interest on the reserves
maintained with it unless the Monetary Board decides otherwise as warranted by
circumstances.

7.9 Reserve Requirement and Liquidity

The reserve requirement is the amount of funds a bank must have on hand each
night. It is a percent of the bank's deposits. The nation's central bank sets the percentage
rate. It is applies to commercial banks, savings banks, savings and loan
associations, and credit unions. It also pertains to U.S. branches and agencies of foreign
banks, Edge Act corporations, and agreement corporations
The use of reserve requirements by the monetary authorities is intended to
complement OMO as tools of liquidity management in the economy. The targeted
reserves are usually bank vault cash and deposits with the Central Bank. Reserve
requirements can be used to effect changes in the volume of money and credit to the
economy because it is usually targeted at and affects the demand for reserve money,
with some impact also on the money multiplier.
The two variants of reserve requirements are cash reserve ratio and liquidity ratio.
Cash reserve requirement is used to complement OMO to achieve effective liquidity
management—especially within the banking system. It is measured by the ratio of a
bank’s cash deposits with the Central Bank to the total banking system deposit liabilities.
The authorities might require that the cash reserve ratio be met by the banks on daily
average basis as was the case in Nigeria in the early 1990s when liquidity management
became a major issue in the observed rising price levels in the economy. The authorities

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may fix the cash ratio at desired percentage of total deposit liabilities of all the banks. In
the case of liquidity ratio, a minimum statutory target of desired percentage of total deposit
liabilities may also be set.
However, there are certain qualifications to liquidity ratio targeting aimed at achieving the
desired effect. In some countries, monetary policy circular which the Central Banks
regularly issue may stipulate:
1. The ratio of share of T–bills and T–certificates in each bank’s liquid assets to the
bank’s total deposit liabilities.

2. Whether a bank’s net placement with discount houses shall count as part of the
bank’s liquid assets for the purpose of meeting statutory liquidity ratio.

3. If only interbank placements which are fully collateralized by eligible instruments

and readily re-discountable at the central bank shall count as part of a bank’s liquid
assets.

4. Whether compulsory deposits with the central bank in respect of the following shall
qualify for inclusion in computing the statutory liquidity ratio:
a. Excess credit by banks that are still subject to aggregate credit ceiling.

b. Shortfalls of loans to agriculture, manufacturing, exports, solid minerals, and

small–scale enterprises.
c. Cash deposits to meet the cash reserve requirement.

Reserve requirements may have adverse impact on the economy for the fact that
they are often treated as sterile or till-funds and, therefore, attract zero or below-market
interest rates. This taxation element is a disincentive to banks and other market operators.
It may also dampen the spirit of financial intermediation of the banks and market
development in the long-run. Unfortunately, the ratios are enforced with regulatory fiat
and banks are obliged to submit to them.

7.10. Bank Regulations and Bank Regulatory Agencies

The most pertinent banking laws in the Philippines are:
The New Central Bank Act (Rep. Act No. 7653) (the
"BSP Law")
The BSP Law establishes the Bangko Sentral ng
Pilipinas (“BSP”), its organizational set-up,
responsibilities, corporate authorities, key operational
procedures, and special powers over banks. It then

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defines the key roles of the BSP, namely: (a) as a central monetary authority with the sole
power to issue currency and legal tender and to regulate the supply of money and credit
in the system; (b) as government banker with the power to represent the national
government in all dealings with international financial institutions; and (c) as a central
bank with regulatory and supervisory power over all banks and financial institutions
exercising quasi-banking functions.
The General Banking Law of 2000 (Rep. Act No. 8791) ("GBL")
The GBL provides for the regulatory supervision of the BSP over all banks in the
Philippines. It likewise provides for the authority of the BSP and the organization,
management, and administration of foreign and local banks, quasi-banks, and trust
entities, and other types of banks. Under the GBL, banks are classified into commercial
banks, universal banks, thrift banks, cooperative banks, Islamic banks, and other classes
as may be determined by the Monetary Board, with various powers and requirements for
each classification. In addition, the GBL also provides for the rules on deposits, loans and
investments, trust operations, placement under conservatorship, and cessation of
banking business.
Foreign Bank Liberalization Act (Rep. Act No. 7221) (“FBLA”)
The FBLA provides for the different modes of entry by foreign banks into the
Philippines. Under this Act, foreign banks which are among the top 150 in the world or
the top five in their country of origin are allowed to invest in up to 60% of the voting stock
of a Philippine bank or to establish branches with full banking authority, provided they can
only opt for one mode of entry, and provided that only 14 foreign banks may establish
branches with full banking authority. At present, entry through the establishment of
branches is not available, at least until one of the 14 foreign bank branches gives up its
branching license.
Thrift Banks Act (Rep. Act No. 7906)
The Thrift Banks Act provided for the creation of a new class of bank – the thrift
bank – which are savings and mortgage banks, stock savings and loan associations, and
private development banks. Under the Thrift Banks Act, thrift banks may exercise similar
powers as those of a commercial bank, but with prior approval of the Monetary Board for
particular activities, such as:
(a) opening of current accounts, (b) engaging in trust, quasi-banking, and money
market operations, (c) acting as collection agent for government entities, (d) acting as
official depository of national agencies where the thrift bank is located, (e) issuing of
mortgage and chattel mortgage certificates, and (f) investing in the equity of allied
undertakings. Since 17 March 2005, allowable foreign equity in thrift banks is down to
60% (from 100%) of the voting stock.
Investment Houses Law (Pres. Decree No. 129, as amended)

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Corporations engaged in the underwriting of securities of other corporations are
required to be licensed as investment houses under the Investment Houses Law.
Investment houses are also allowed to act as financial consultant, investment adviser,
portfolio manager, financial agent, and broker. Foreigners are allowed to own up to 60%
of the voting stock of an investment house. Universal banks are allowed to perform the
functions of an investment house on an in-house basis.
Financing Company Act (Rep. Act No. 7906)
A corporation primarily engaged in extending credit facilities by direct lending,
discounting or factoring commercial papers or accounts receivable, buying and selling
evidences of indebtedness, or financial leasing is required to be licensed as a financing
company under the Financing Company Act, unless the corporation is a bank, investment
house, insurance company, or other financial institution with a secondary license.
Foreigners are allowed to own up to 60% of the voting stock of a financing company.
Secrecy of Bank Deposits Act (Rep. Act No. 1405, as amended)
This law prohibits the examination and inquiry into all bank deposits and
investments in government securities with Philippine banks by any person, government
official, bureau, or office, and prohibits the disclosure by any bank official or employee to
any unauthorized person of any information concerning the said deposits, subject to
certain exceptions as discussed in Section 12 below.
Anti-Money Laundering Act (Rep. Act No. 9160, as amended) (“AMLA”)
The AMLA criminalizes money laundering and identifies the predicate crimes from
which money laundering can arise. In order to prevent money laundering, the AMLA
created the Anti-Money Laundering Council (“AMLC”) and granted it such powers ranging
from requiring reports from covered institutions (including banks and other financial
institutions), rule-making, prosecution, and actual imposition of sanctions. In addition, the
AMLA requires covered institutions to adopt Know-Your-Customer guidelines and to
report transactions involving at least PhP500,000 as well as suspicious transactions to
the AMLC.
Foreign Currency Deposit Act (Rep. Act No. 6426, as amended, and Pres. Decree
No. 1035) (the “FCDU Law”)
By virtue of the FCDU Law, banks with a Foreign Currency Deposit Unit (“FCDU”)
license are authorized to accept foreign currency deposits, to issue certificates to
evidence such deposits, to discount said certificates, and to accept deposits as collateral
for loans, while banks with an expanded FCDU license are authorized to obtain foreign
currency loans from and conduct foreign currency transactions with non-residents,
offshore banking units, and other depository banks with expanded FCDU licenses.
Interest earnings from such foreign currency deposits are granted absolute tax
exemptions. It is also provided that there shall be no restriction on the withdrawal or
transfer by the depositor of his deposits, except upon mutual agreement with the bank.
ARGUSON, PANGANIBAN G., RODIL, VILLALOBOS
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PART III: COMMERCIAL BANKING
Bank Regulatory Agencies
The Securities and Exchange Commission (SEC): an independent government
agency which supervises the securities market, oversees the operations of the PSE and
its members, and ensures compliance with the provisions of the securities act. Also issues
the rules and regulations on long and short term papers subject to approval by the
Monetary Board.
Philippine Stock Exchange: a self-regulatory organization (SRO) with the authority to
police its ranks through the Compliance and Surveillance Group (CSG).
Central Bank – Bangko Sentral ng Pilipinas (BSP): mandated to provide direction in the
areas of money, banking and credit. Its primary objective is to maintain price stability,
promote monetary stability and convertibility of the peso. BSP supervises the operations
of banks and has regulatory powers over the operations of finance companies and
financial institutions.
Department of Finance: responsible for the management of the government’s financial
resources; formulation and administration of fiscal policies; and the supervision of
revenue operations for national and local governments.
Bureau of Treasury: custodian of all national government funds; creation and execution
of policies on financial management, public borrowings and capital market development;
and the management and control of public debts from domestic and foreign sources.

News Article:
“Large banks to show ‘greater resilience’ to risks”
https://www.bworldonline.com/large-banks-to-show-greater-resilience-to-risks/

Videos:
“Commercial Banks Meaning and Functions - Class 12”
https://www.youtube.com/watch?v=wlsOeE346SI&feature=youtu.be
Case Study:
“The Effect of Foreign Bank Entry on the Performance of Philippine Domestic Banks”

https://www.dlsu.edu.ph/wp-content/uploads/pdf/conferences/research-congress-
proceedings/2018/sep-03.pdf

ARGUSON, PANGANIBAN G., RODIL, VILLALOBOS

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PART III: COMMERCIAL BANKING
REFERENCES:
7.1.https://www.investopedia.com/terms/b/business-banking.asp
https://www.investopedia.com/ask/answers/061615/what-are-major-categories-
financial-institutions-and-what-are-their-primary-roles.asp
7.2.http://www.yourarticlelibrary.com/banking/commercial-bank-the-balance-sheet-
of-a-commercial-bank-banking/10984
https://kalyan-city.blogspot.com/2010/09/balance-sheet-of-commercial-bank.html
7.3. https://www.sapling.com/7498318/sources-funds-commercial-banks
7.4. https://economictimes.indiatimes.com/definition/investment-banking
http://www.businessdictionary.com/definition/cash-at-bank.html
https://www.finra.org/investors/learn-to-invest/types-investments
7.5. https://budgeting.thenest.com/types-loans-offered-banks-26219.html
https://www.accaglobal.com/ca/en/business-finance/types-finance/loans.html
7.6.https://accountlearning.blogspot.com/2013/07/services-offered-by-modern-
banks-to.html
7.7. https://www.investopedia.com/terms/a/asset-liabilitymanagement.asp
https://www.europeanfinancialreview.com/strategic-alm-and-integrated-balance-
sheet-management-the-future-of-bank-risk-management/
7.8. https://www.investopedia.com/terms/b/bank-reserve.asp
http://www.bsp.gov.ph/about/charter_14.asp
7.9. https://www.sapling.com/7498318/sources-funds-commercial-banks
https://www.sciencedirect.com/topics/economics-econometrics-and-
finance/reserve-requirements
https://www.thebalance.com/reserve-requirement-3305883
7.10.https://www.google.com/url?sa=t&source=web&rct=j&url=http://www.lexmundi.c
om/images/lexmundi/PDF/PG/BankFinance/Phillipines.pdf&ved=2ahUKEwj2laW
coMDkAhUNA4gKHU2yC6wQFjAPegQICRAB&usg=AOvVaw1PWuKmb3EVUw
uIn-cBcQnU&cshid=1567914036243
http://www.bsp.gov.ph/regulations/regulations.asp?type=1
http://www.bsp.gov.ph/regulations/laws.asp

ARGUSON, PANGANIBAN G., RODIL, VILLALOBOS