BANKING

AND
FINANCIAL
INSTITUTIONS
Vivian S. Eteroza, LPT, MBA
WEEK 1 – JANUARY 18, 2021

INTRODUCTION OF THE SUBJECT COURSE

SCOPE OF OUR WEEK 1 TOPIC

I. HISTORY OF THE PHILIPPINE BANKING/FINANCIAL SYSTEM

II. BANKING – CLASSIFICATION AND POWERS OF BANKS IN THE PHILIPPINES

III. 18 TYPES OF SERVICES OF MODERN BANKS

IV. ELEMENTS OF A FINANCIAL SYSTEM

 HISTORY OF THE PHILIPPINE
BANKING/FINANCIAL SYSTEM

Financial System is like the heart of human beings,

if it stops working then the person is dead in the
same way that if the financial system stops
working then the economy would collapse.
In the Philippine settings, Financial System is composed of
banking institution and non bank financial intermediaries
including commercial banks, specialized government banks,
thrift banks and rural banks. It is also composed of offshore
banking units, building and loan association, investment and
brokerage houses and finance companies. The Bangko
Sentral ng Pilipinas and the Securities Exchange
Commssion maintained the regulatory and supervisory
control.
Obras Pias (Pious Works) – banking in the
th
Philippines began in the 16 century by
establishment of this organization composing
of layman associated with religious order. The
Obras Pias started by Father Juan Fernandez
De Leon in 1974 and ended in 1820.
Banco Espańol-Filipino de Isabel II – was the
first state bank in the Philippines that was
established on August 1, 1851 by the Board of
Authorities ( Junta de Autoridad) in Manila
because of the need for more extensive bank
services and facilities. January 1, 1912 the
named was changed to Bank of the Philippine
Islands.
Rodriquez Bank - was among the first bank that
emerged in the early 19thcentury which was
more of a loan association than a regular bank.

In 1906 Postal Savings Bank - was put up and it

was the first agricultural bank. Later on its assets
and liabilities was transferred in 1916 to the
Philippine National Bank.
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 the sole
authority to issue the republic’s new paper
money and regulate and supervise the country’s
banking system.
In 1873, British-Oriented banks opened branches in the country
as a result of the expanded Philippine-European trade following
the opening of the Suez Canal in 1869

In 1872, the Chartered Bank of India, Australia and China opened

branches in Manila and la8terin Iloilo and Cebu

In 1875 the Hong Kong and Shanghai Banking Corporation

establish a branch in Manila.
Monte de Piedad y Caja de Ahorros - is the
first mutual savings in the country. A unique
combination of savings banks and pawnshop opened
in 1982 was provided initial capital by the Obras
Pias. The bank was then renamed Monte de Piedad
and Savings bank.
Banking- is the service performed by the
financial institution known as a bank,
which is primarily concerned with the
safekeeping of funds through the
acceptance of deposits of money,and the
provision of credit through lending of
money.
 Bank covered a wide range of services
•Receiving, collecting, transferring, paying, lending, investing, dealing,
exchanging, and handling money (safe deposit, custodianship, agency,
trusteeship) and money claims both domestically and internationally

•Other financial institutions also perform fund mobilization and credit

functions. These are investment houses, financing companies, non-stock
savings and loan associations, building and loan associations, pawnshops and
mutual funds.
BANKING – CLASSIFICATION AND
POWERS OF BANKS IN THE
PHILIPPINES
1) Universal Banks
Universal banks have the same powers and functions as with
commercial banks. In addition, universal banks may perform the
following:
a. Powers of an investment house
b. Power to invest in non-allied enterprises
c. Power to own up to 100% of the equity in a thrift bank, rural
bank, a financial allied enterprise or a non-financial allied
enterprise.
d. In case of listed universal banks, the power to own up to
100% of voting stock of ONLY one universal bank or
commercial bank.
2) Commercial Banks
Have the powers to exercise all such powers to carry out commercial
banking such as accepting drafts and issuing letters of credit, discounting
and negotiating promissory notes, drafts, bills of exchange and other
evidences of debt, accepting or creating demand deposits, receiving other
types of deposit substitutes, buying and selling foreign exchange and gold
or silver bullion, acquiring marketable bonds and other debt securities, and
extending credit.
Commercial banks may also invest in allied enterprises; purchase, hold
or convey real estate; receive custody funds, documents and valuable
objects; act as financial agent and buy and sell by order of and for the
account of their customers, evidences of indebtedness and all types of
securities; make collections and payments for the account of others;
upon prior approval of the Monetary Board act as managing agent,
adviser, consultant or administrator of investment accounts; rent out
safety deposit box; and, engage in quasi-banking functions.
3) Thrift Banks
Composed of (a) savings and mortgage banks, (b) stock savings and loan associations and
(c) private development banks. Thirft banks may perform the following: grant secured or
unsecured loans; invest in readily marketable bonds and other debt securities, commercial
papers and accounts receivable, drafts, bills of exchange, acceptances or commercial
notes; issue domestic letters of credit; extend credit facilities to private and government
employees; extend credit against the security of jewelry and similar items; accept savings
and time deposits; rediscount paper with Land Bank of the Phils, Devt Bank of the Phils,
and other GOCCs; accept foreign currency deposits; act as correspondent for other
financial institutions; purchase, hold or convey real estate; and, offer other banking
services provided in Sec 53 of RA no. 8791.
With prior approval of the Monetary Board, thrift banks may also: open
current/checking accounts; engage in trust, quasi-banking functions and
money market operations; act as collection agent for government entities; act
as official depository or national agencies and local government funds in the
local government unit the bank is located; issue mortgage and chattel
mortgage certificates; invest in equity of allied undertakings; issue foreign
letters of credit; and, pay/accept/negotiate import/export draft bills of
exchange.
4) Rural Banks
Rural banks may perform the following: extend loans and advances to farmers, fishermen,
farm families, cooperatives, merchants, private and public employees; accept savings and
time deposits; act as correspondent for other financial institutions; rediscount paper with
Land Bank of the Phils, Devt Bank of the Phils or any other bank; act as collection agent;
offer other banking services provided in Sec 53 of RA 8791. With prior approval of the
Monetary Board, an RB may perform: accept current or checking account provided rural
bank has a net asset of at least PHP5 million; accept negotiable order of withdrawal
accounts; act as trustee over estates/properties of farmers and merchants; act as official
depository of local government unit in the local government unit where bank is locates;
sell domestic drafts; and invest in allied undertakings.
5) Cooperative Banks
A Coop Bank shall primarily provide financial, banking and
credit services cooperatives and their members, and to general
public. It may also perform any or all of the banking services
offered by other types of banks subject to prior approval of the
BSP.
6) Islamic Banks
An Islamic bank, insofar as not inconsistent or incompatible with RA 6848, may perform: open
savings accounts for safekeeping with no participation in profit or loss unless authorized by the
holder; accept investment account placements and invest the same for a term with the bank's funds in
Islamically permissible transactions on participation basis; accept foreign currency deposits; buy and
sell foreign exchange; handle remittances and fund transfers; accept drafts and issue letters of credit,
negotiate notes and bills of exchange and other evidence of indebtedness; act as collection agent;
provide financing; handle storage operations for goods or commodity financing; issue shares for the
account of institutions and companies assisted by the bank; undertake various investments in all
transactions allowed by Islamic Shari'a; and other services allowed by Monetary Board.
Types of Bank Services
1.Advancing of Loans.
2. Overdraft
3. Discounting of Bills of Exchange
4. Check/Cheque Payment
5. Collection and Payment of Credit Instrument
6. Foreign Currency Exchange
7. Consultancy
8. Bank Guarantee
9. Remittance of Fund
10. Credit cards
11. ATMs Services.
12. Debit cards.
13. Home Banking.
14. Online Banking
15. Mobile Banking
.

16. Accepting Deposit.

17. Priority Banking
18. Private Banking
ELEMENTS OF FINANCIAL SYSTEM
1. Money
2. Financial Instruments
3. Financial Markets
4. Financial Institutions
5. Regulatory Agencies
6. Central Banks
END OF WEEK 1