Banking and

Financial
Institutions
History of Philippine Banking
Banking in the Philippines began in the 16th century with
the establishment of obras pias (pious works) by laymen
associated with religious orders. Founded from the
legacies of donations of wealthy individuals, the obras
pias were the sole source of commercial credit. Its
funds were invested in mortgage financing loans, trade
with Acapulco and maritime insurance. Obras Pias
profits were channeled to the construction of churches,
government buildings and other charitable and
religious projects.
History of Philippine Banking
Among the First Banks that emerged in the early 19th century was
the Rodriguez Bank which was more of a loan association than a
regular bank. But in 1851, the Board of Authorities in Manila
established the Banco Español Filipino de Isabel II, considered to
be the first state bank in the Philippines wherein 50%of the
capital came from obras pias.
History of Philippine Banking
In 1873, British orient banks opened branches in the country as a
result of the expanded Philippine European trade that followed
the opening of Suez Canal in 1869. The chartered bank of India,
Australia and China opened a branch in Manila in 1872 and
later in Iloilo and Cebu. The Hongkong Shanghai Banking
Corporation established its Manila branch in 1875. The first
mutual savings bank the country, the Monte de Piedad y Caja
de Ahorros – a unique combination of bank and pawnshop later
on renamed Monte de Piedad and Savings Bank.
History of Philippine Banking
Banco Español Filipino de Isabel was renamed to Bank of the
Philippine Islands in 1912. It is considered the oldest bank in the
country.
During the Japanese occupation, seven domestic private banks
came into existence. Branches of Japanese as well as Chinese
banks were also opened during the early part of the period. The
Postal Savings Bank in 1906. The First Agricultural Bank in 1908
although its assets were transferred to Philippine National Bank
when it was organized in 1916.
History of Philippine Banking

Three years after the American regime ended the Central Bank
of the Philippines was created, establishing a managed
monetary system in the Philippines. It was given sole authority to
issue the republic’s new paper money, regulate and supervise
the country’s banking system. More private commercial banks
and savings bank came into operation later.
The Central Bank of the Philippines

The idea of a central bank was first conceived by former

Central Bank Governor Miguel Cuaderno in 1933. After several
years of researches it was only in 1946 that a formal preparation of
the establishment began upon the instruction of Pres. Manuel
Roxas. The Central Bank of the Philippines was established in 1949.

The Central Bank has been assigned the task of

administering the monetary, banking and credit system of the
country. Its principal objectives are to maintain the internal and
external stability of the peso and to foster monetary credit and
exchange conditions that are favorable to the attainment of a
balanced and sustainable economic growth.
The Central Bank of the Philippines

Under the 1973 Constitution, the Central Bank of the

Philippines does not only function as a Central Bank but also as a
central monetary authority. This means it does not only supervise
the operations of banks but also regulates the activities of non-
bank financial institutions which include investment houses,
investment companies, finance companies, securities
dealer/brokers, money brokers, fund managers, lending investor
and pawnshops.
Chronology of Events: Central Banking in the
Philippines

1900
Act No. 52 was passed by the First Philippine Commission placing all banks under the Bureau of Treasury. The Insular Treasurer was authorized to supervise and examine banks and banking activities.

February 1929 The Bureau of Banking under the Department of Finance took over the task of banking supervision.

1939
A bill establishing a central bank was drafted by Secretary of Finance Manuel Roxas and approved by the Philippine Legislature. However, the bill was returned by the US government, without action, to the Commonwealth Government.

1946 A joint Philippine-American Finance Commission was created to study the Philippine currency and banking system. The Commission recommended the reform of the monetary system, the formation of a central bank and the regulation
of money and credit.

The charter of the Central Bank of Guatemala was chosen as the model of the proposed central bank charter.

August 1947 A Central Bank Council was formed to review the Commission’s report and prepare the necessary legislation for implementation.

February 1948
President Manuel Roxas submitted to Congress a bill “Establishing the Central Bank of the Philippines, defining its powers in the administration of the monetary and banking system, amending pertinent provisions of the Administrative
Code with respect to the currency and the Bureau of Banking, and for other purposes.

15 June 1948 The bill was signed into law as Republic Act No. 265 (The Central Bank Act) by President Elpidio Quirino.

3 January 1949 The Central Bank of the Philippines (CBP) was inaugurated and formally opened with Hon. Miguel Cuaderno, Sr. as the first gov ernor.

The broad policy objectives contained in RA No. 265 guided the CBP in the implementation of its duties and responsibilities, particularly in relation to the promotion of economic development in addition to the maintenance of internal
and external monetary stability.

November 1972 RA No. 265 was amended by Presidential Decree No. 72 to make the CBP more responsive to changing economic conditions.

PD No. 72 emphasized the maintenance of domestic and international monetary stability as the primary objective of the CBP. Moreover, the CBP’s authority was expanded to include not only the supervision of the banking system but
also the regulation of the entire financial system.

January 1981
Further amendments were made with the issuance of PD No. 1771 to improve and strengthen the financial system, among which was the increase in the capitalization of the CBP from P10 million to P10 billion.

1986
Executive Order No. 16 amended the Monetary Board membership to promote greater harmony and coordination of government monetary and fiscal policies.

3 July 1993 Republic Act No. 7653 was passed establishing the Bangko Sentral ng Pilipinas (BSP), replacing CBP as the country's central monetary authority.

14 February 2019
Republic Act 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.
Republic Acts (RA) and Implementing Rules and Regulations (IRR) of RAs.
R.A. No. Date Description
R.A. 3565 22 Jun 1963 An Act to Require the Disclosure of Finance Charges in Connection with Extensions of Credit
R.A. 6426 04 Apr 1972 An Act Instituting A Foreign Currency Deposit System In The Philippines, and For Other Purposes
R.A. 3591, as amended An act establishing the Philippine Deposit Insurance Corporation (PDIC Charter)
R.A. 7353 02 Apr 1992 An Act Providing for the Creation, Organization and Operation of Rural Banks, and For Other Purposes
R.A. 7653 10 Jun 1993 The New Central Bank Act
R.A. 7721 18 May 1994 An Act liberalizing the entry and scope of operations of foreign banks in the Philippines and for other purposes
R.A. 7906 23 Feb 1995 An Act providing for the regulation of the organization and operation of Thrift Banks, and for other purposes

R.A. 8366 21 Oct 1997 An Act liberalizing the Philippine investment house industry, amending certain sections of Presidential Decree No. 129, as amended, otherwise known as "The Investment Houses Law"

R.A. 8367 21 Oct 1997 Revised Non-Stock Savings and Loan Association Act of 1997
R.A. 8556 26 Feb 1998 An Act amending R.A. 5980, as amended, otherwise known as the Financing Companu Act

R.A. 8791 12 Apr 2000 General Banking Law of 2000, an act providing for the regulation of the organization and operations of banks, quasi-banks, trust entities and for other purposes

R.A. 9160 29 Sep 2001 Anti-Money Laundering Act of 2001

R.A. 9178 13 Nov 2002 An Act to promote the establishment of Barangay Micro Business Enterprises (BMBEs), providing incentives and benefits therefor, and for other purposes

R.A. 9182 18 Dec 2002 An act granting tax exemptions and fee privileges to special purpose vehicles which acquire or invest in non-performing assets, setting the regulatory framework therefore, and for other purposes

R.A. 9182
19 Mar 2003 Implementing Rules and Regulations of R.A. 9182
IRR
R.A. 9194 07 Mar 2003 An act amending Republic Act No. 9160, otherwise known as the "Anti-Money Laundering Act of 2001"
R.A. 9194
06 Aug 2003 Implementing Rules and Regulations of R.A. 9194
IRR
An Act amending certain sections of the National Internal Revenue Code of 1997, as amended, by excluding several services from the coverage of the value-added tax and re-imposing the gross receipts tax on
R.A. 9238 5 Feb 2004
banks and non-bank financial intermediaries performing quasi-banking functions and other non-bank financial intermediaries beginning January 01, 2004

R.A. 9294 28 Apr 2004 An Act restoring the tax exemption of OBUs and FCDUs, amending for the purpose Section 27 (D) and Section 28, Paragraphs (A) (4) and (A) (7) (b) of the National Internal Revenue Code as amended.

R.A. 9505 22 Aug 2008 An Act Establishing a Provident Personal Savings Plan, known as the Personal Equity and Retirement Account (PERA)
R.A. 9505 IRR 21 Oct 2009 Implementing Rules and Regulations of R.A. 9505
R.A. 10000 23 Feb 2010 An Act Providing for an Agriculture and Agrarian Reform Credit and Financing System Through Banking Institutions
R.A. 10000 IRR 14 Jul 2011 Implementing Rules and Regulations of R.A. 10000
An Act to Further Strengthen the Anti-Money Laundering Law, Amending for the Purpose Sections 10 and 11 of Republic Act No. 9160, Otherwise Known as the "Anti-Money Laundering Act of 2001", as Amended,
R.A. 10167 18 Jun 2012
and for Other Purposes
R.A. 10168 18 Jun 2012 An Act Defining the Crime of Financing of Terrorism, Providing Penalties Therefor and for Other Purposes
R.A. 10574 24 May 2013 An Act Allowing the Infusion of Foreign Equity in the Capital of Rural Banks
R.A. 10641 15 July 2015 An Act allowing the full entry of foreign banks in the Philippines, amending for the purpose Republic Act No. 7721

Amendments to the IRR of RA 10000 03 July 2018 Amendments to the IRR of RA 1000

R.A. 11127 30 Oct 2018 The National Payment Systems Act

R.A. 11211 14 Feb 2019 An Act Amending Republic Act Number 7653, Otherwise Known As "The New Central Bank Act", And for the Purposes
Bank Defined

- A bank is a place where people deposit their money

Bank Defined

General Banking Act defined Bank as

Only entities duly authorized by the Monetary Board of the Central
Bank may engage in the lending of funds obtained from the public
through the receipt of deposits of any kind and all entities regularly
conducting such operations shall be considered as banking institutions
and shall be subject to the provisions of this Act, the Central Bank Act and
of other pertinent laws.
Bank Defined

In other words an entity or institution to be considered a bank must possess

the following attributes
1. It must be authorized by the Monetary Board of the Central Bank
2. It must engage in lending of funds
3. It must obtain the funds from the public through the receipt of deposits
of any kind, and
4. It must regularly conduct such operations
Classification of Banks

1. Commercial Bank
2. Thrift Banks, composed of
a. Savings and mortgage banks
b. Stock savings and Loan Associations
c. Private Development Banks
3. Rural Banks (Regional Unit Bank)
4. Specialized Government Banks
Commercial Banking

The terms commercial bank and commercial banking

corporation are synonymous and interchangeable. The General
Banking Act, otherwise known as Republic Act No. 337 specifies
the powers, functions or services of a commercial bank in
addition to its powers as a corporation.
Commercial Banking
A commercial banking corporation is any corporation which
a. accepts or creates demand deposits subject to withdrawal by check.
b. Savings and time deposits transactions
c. they accept drafts and issue letters of credit by discounting and
d. negotiating promissory notes, drafts, bills of exchange and other
evidences of debts, by receiving deposits by buying and selling
foreign exchange and gold or silver bullion and b lending money
against personal security or against securities consisting of personal
property or mortgages on improved real estate and the insured
improvements thereon.
Commercial Banking
Commercial Banking
Commercial Banking

e. Commercial banks may acquire readily marketable bonds and

other debt securities subject to such rules as the Monetary Board may
promulgate. These rules may include but need not be limited to the
determination of bonds and other debt securities eligible for
investment, the maturities and aggregate amount of such
investment.
f. Commercial banks may invest in equities in warehousing
companies, leasing companies, storage companies, safe deposit box
companies, mutual funds.
Commercial Banking

Commercial Banks today extend many kinds of loans, lending not

only to individuals but to all types of business firms, including other
financial institutions and governments. They deal in foreign
exchange. They have trust department. Act as insurance agents. Plus
the international banking. Commercial banks that carry this
expanded authority are called Universal Banks.
Thrift Banks
Savings and Mortgage Bank, Stock savings and Loan
Associations and Private Development banks

The term Savings Bank, Mortgage Bank and Savings and Mortgage
Bank are synonymous and interchangeable. A savings and mortgage
bank is any corporation organized for the purpose of accumulating
the savings of depositors and investing them, together with its capital,
in readily marketable bonds and debt securities, commercial paper
and accounts receivable, drafts, bills of exchange, acceptances or
notes arising out of commercial transactions or in loans secured by
bonds, mortgages on real estate and insured improvements thereon.
Rural Banks

The powers, functions or services of a Rural Bank are embodied in

Republic Act720, otherwise known as Rural Bank’s Act.

It must be borne in mind that it is the declared policy of the state to

promote and expand the rural economy in an orderly and effective
manner by providing the people of the rural communities with the
means of facilitating and improving their productive activities and to
encourage cooperative
Rural Banks
Services of Rural Banks
1. Accept savings and time deposits
2. Act as correspondent for other financial institutions
3. Act as collection agent
4. Offer other banking services as provided in Section 72 of the GBA
with written permission of the Monetary Board of the BSP it may
also
a. Open current or checking accounts
b. Act as trustee over estates or properties of farmers and merchants
c. Act as official depository of municipal, city or provincial funds in the
municipality where it is located.
d. Rediscount papers with PNB and DBP
 Specialized government banks are created by the government for specific purposes under
special charters. Among these are the Development Bank of the Philippines, the Land Bank
of the Philippines and the Philippine Amanah Bank

a. Development Bank of the Philippines was established in 1946 as the Rehabilition Finance
Corporation to attend to the requirements of rehabilitation and development after World War
II. Today it is tasked with the development and expansion of the agricultural industry and
promoting the establishment of private development banks. Its lending activities are focused
ond development projects such as in agriculture and industry and low cost housing. It also has
investment banking functions

b. The Land Bank of the Philippines was organized in 1963 to provide financial support to the
Agrarian Reform Program. Its lending activities are geared primarily towards helping farmers
acquire land under the agrarian reform program as well as financing the cultivation of these
lands and marketing of the produce. It also grants loans to acquire essential commodities. Since it
has also been granted general powers under the GeneralBanking Act, it likewise performs the
functions of a universal bank, including trust functions
 Specialized government banks are created by the government for specific purposes under
special charters. Among these are the Development Bank of the Philippines, the Land Bank
of the Philippines and the Philippine Amanah Bank

c. The Philippine Amanah Bank was established in 1974 to promote and accelerate the socio-
economic development of Mindanao, especially in predominantly Muslim provinces. It provides
credit, commercial, development and savings banking facilities at reasonable terms to the
people of the primarily Muslim provinces of Mindanao and Palawan. It adheres to the Islamic
concept of banking, particularly the no-interest and partnership principles.
References

Money Credit and Banking by Feliciano Fajardo and Manuel M. Manansala

Introduction to Philippine Money Credit and Banking by Ruby Alminar Mutya
Banking Theories and Management by Michael Brandl

Bsp.gov.ph

Prepared by: Prof. Ma. Nonette M. Merene MBA, LPT