A.

General Environment

Political, Legal and Government Aspects

According to Republic Act No. 8791 or the General Banking Law of 2000, in its

Declaration of Policy, it recognizes the fiduciary nature of banking that requires the highest standards of

integrity and performance. This is why it is upon the State to promote and maintain a stable and

efficient banking and financial system by creating and upholding laws not only intended for the

supervision of banking and financial institutions but also for the protection and benefit of the clients of

such banks and financial institutions.

The banking industry is an industry that is imbued with public interest that requires

itself to be regulated by the government. Mainly, the General Banking Act of 2000 governs all banking

institutions through the Bangko Sentral ng Pilipinas and its Monetary Board. It is imposed in the

Monetary Board, the governance, supervision, authority over such banking and financial institutions as

well as to provide policy direction. Aside from BSP Circulars, the banking industry is protected by the

Philippine Deposit Insurance Corporation. Being an industry generally involved with money,

capitalization requirements are specific and must strictly be followed. As well as managerial

requirements especially for universal and commercial banks.

Economic Developments

In 2016, the Philippines had earned roughly P11,546,104,000,000 as its Gross Domestic

Product according to National Statistics Coordination Board. From the year 2014, the country’s GDP

continually increases. It is in 2016 that the Philippine Economy expanded by 7.2%. There were boosts in

several sectors, especially in the service sector. However, there were also slow downs in certain sectors
such as imports and construction. Also contributing to these slow downs are the impact of typhoons

that hit the country, which may have reduced the GDP growth.

Philippine financial markets experienced large volatilities as investors responded to the

tapering of the United States’ stimulus program, wherein stock and bond prices fell significantly.

However, monetary and fiscal policy supported growth. While government finances continue to improve

due to tax improvements and efficient spending. On the other hand, remittances and export of services

were more or less unaffected by the slow growth in advanced economies. Cash remittances increased by

6.4% in the previous year, along with the increasing demand for skilled Filipino workers.

The services sector remained the main source of growth which expanded by 7.1%. This

explains the resilient growth of financial intermediation and other business activities. Manufacturing

grew by 10.5% due to the strong domestic demand for food, chemical products, communication

products, basic metals, etc. While agriculture barely contributed to the growth as several decline in the

production of corn, coconut, sugarcane and banana occurred.

One major economic change to be seen is the preparation and the actual integration in

2018 of the ASEAN community. This movement unifies the markets of Southeast Asian nations into one.

Aligning each member country to another through political and economic measures. The banking

industry is one of the sectors that is predicted to be affected by such integration as the Philippines

opens its doors to foreign investors. However, foreign competitors will be on the prowl as well.

Nonetheless, there has been no indication regarding a change the General Banking Law and the

guidelines and requirements in establishing banks in the Philippines, thus saving the local banking

industry from penetration.

Socio-cultural, Demographic, Lifestyle Changes

 The Philippines is a society that is confronted by many socio-cultural challenges, such a

rapid population growth, ethnic, religious and poverty problems. The Philippines, being under the rule of

Western powers for centuries, has left a mark which had become a part of the Filipino identity. Over the

years, the country had been witness to many cultural and lifestyle trends that have influenced the

banking industry.

The Philippines has a dense population but with an uneven distribution. It has an

estimated population of 101,112,799 Million and fifty percent of which is urban, especially in Metro

Manila, which has the highest density. For the last quarter of 2017, it was recorded that the Philippines

had a 6% unemployment rate, making the employment rate at 94%. With, the large percentage of

Filipinos who are employed, this contribute to the growth of the banking industry. Their profit indicates

the ability to engaged in banking and financial activities.

Lifestyle and business trends affect the banking industry. Aside from young adults to the

elderly, banking trends for the young have been prevalent recently. Junior savings accounts, jumpstart

accounts and other savings plan for children. Also, an increase in the number of universities and colleges

partner up with banks in the collection process of tuition fees.

Technological Developments

The banking industry is not easily swayed by technological trends, however, when such

a trend does, it leaves a huge impact. Banks are developing new branch formats that consist of sturdier

alternatives to the traditional bank branch. Banking customers also now handle their banking

transactions via smartphones and tablets than through other channels. This makes the mobile banking

channel a key element in earning customer loyalty. Mobile banking is coupled with transactions with

other banking channels so as to deliver seamless service. There was a reported rise in the use of a bank’s
mobile banking application by 19% in the previous year. Despite the large patronage of mobile banking,

there is still a decline in the usage of bank branches, ATM’s and even online banking.

However, there is an increase in omnichannel consumers. Omnichannel means

accessing with more than one banking channels. Despite mobile banking rising to mass appeal, clients

still prefer combining digital and physical channels in banking. Bain and Company, Inc. sees that this is

critical for effective service, marketing and selling, because customers expect to be able to hop from one

channel to another. Said company also provided that banks that pull ahead in loyalty by investing

heavily in mobile to better experience will reap financial benefits. While banks that lag investing in such

advantage will miss reaping the financial benefits as well as fall behind in investment.

Behind this advantage, however, comes a small problem: hidden defection. These small

hidden defects that result to lesser customer satisfaction which may result to bank switching. Banks that

fail to respond against these defects risk profits. Aside from defection, which is an entirely internal

concern, there also exist a threat of security breaches and attacks. Several causes of which is the

crumbling personal relationships between managers and customers and a reputation for security, also

the increase of digital assets in the banking and financial institutions.