I.

Banking Institution
1.1 Philippine Banking History
History of Philippine Banking Banking in the Philippines began in 16th century which the
establishment of Obras Pias (pious works) by laymen associated with religious orders. Funded
from the legacies and donations of wealthy individuals, the Obras Pias were then sole source of
commercial credit. Its fund was invested in mortgage financing loans, trade with Acapulco and
maritime insurance. Obras Pias profits were channeled to theconstruction of churches,
government buildings and other charitable and religious projects.
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. The need for more extensive banking
services and facilities led the Board of Authorities (Junta de Autoridades) in Manila to establish
on August 1, 1851 the first state bank in the Philippines: Banco Espanol-Filipino de Isabel II.
The Obras Pias provided 50 percent of the bank’s capital.
In 1873, British-Orient banks opened branches in the country as a result of the expanded
Philippine-European trade that followed the opening of the 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 in the country, the Monte de Piedad yCaja de Ahorros – unique
combination of savings and pawnshop, opened in 1882, and was provided initial capital by the
Obras Pias. The bank was then renamed Monted de Piedad and Savings Bank.
The Banco Espanol-Filipino de Isabel II changed its name to Bank of the Philippine Island
on January 1, 1912. The bank had by then established correspondent arrangements with a Paris
bank for the servicing of client’s transactions with counterparts in Europe and other parts of the
world. This is now the oldest existing bank in the country.
During the American 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 was put up in 1906. The first agricultural bank was established
in 1908 but its assets and liabilities were transferred to the Philippine National Bank which was
organized in 1916.
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 country’s paper money, regulate and supervise the country’s banking system. More
private commercial and savings bank came into operation later. The period saw the start and
growth of the rural banking system, the savings and loan associations and the specialized
government banks. (Alminar-Mutya).

Banking Institution
1.2 Philippine Banking Today
The Philippine banking today industry is not spared from the adverse impact of this
pandemic. The Bangko Sentral ng Pilipinas (BSP) issued the implementing rules and regulation
for the Bayanihan Act RA No. 11469. The law requires all lenders under BSP supervision to
grant a 30-day grace period or extension for the payment of loans due within the enhanced
community quarantine (ECQ) period, without imposing additional interest, penalties or charges
on their borrowers. Further, the BSP also relaxed the know-your-customer (KYC) requirements
for both over the counter and electronic or online transactions. This is to make sure that
Filipinos continue to have access to basic government and financial services amid the COVID-
19 situation.

1.3 Principles of Banking Business

1. Principle of Liquidity
-The principle of liquidity is very important for the commercial bank. Liquidity refers to the
ability of an asset to convert into cash without loss within a short time.
-Paying the deposited money on demand of customers is called liquidity in the sense of banking.

2. Principle of Solvency
-Solvency means financial capability or sufficiency in the capital. To stay in these competitive
market commercial banks must have sufficient capital. If the funds are not sufficient the bank
cannot run his business.
-The main source of funds of the commercial bank is the deposited money by the depositors
through the different types of accounts.
-Depositors keep cash in the bank, especially for safety. So commercial banks must ensure the
safety of deposited funds.

3. Principle of Profitability
- The main objective of the commercial bank is to earn a profit. For earning profit commercial
bank have to invest by providing short-term loans, before providing loan commercial banks
have to compensate a certain amount of money as liquidity.

4. Principle of Loan and Investment

- The main source of profit of bank is granting loans to any individual or organization.
Investment is a profitable and sound source of income. Commercial banks invest in the business
and investment sectors.

5. Principle of Savings
- Commercial banks collect funds by creating savings facilities. Commercial banks try to collect
savings from society surplus.

Banking Institution
 -The commercial bank invests these savings to generate profit. So, more savings, more
investment, and more profit.

5. Principle of Services
-The commercial bank ensures the best services to their customers. The success of a bank
depends on the services provided by the bank. The customer chooses those banks that provide
improved services.

6. Principle of Secrecy
-Customers want to keep secrets about their valuable assets and money. So banks must have to
keep secrets about their customer’s accounts. If a commercial bank does not maintain secrecy
the customer will be dissatisfied.

8. Principle of Efficiency
-The commercial bank should operate their business efficiently. So that they can succeed at the
objective. In this competitive market, there is no alternative way without efficiency in
management. So commercial bank must train their employees to increase the efficiency in
management.

9. Principle of Location
-Commercial banks must have to locate their branches in the commercial area where many
customers are available. The location must be safe for the customers and an easy
communication system must exist.
Other principles;
 The principle of goodwill.
 The principle of the economy.
 The principle of technology.
 The principle of publicity.

These are the basic principles of the commercial bank. The commercial bank must follow these
principles.

1.4 Types of Banks

What Is a Bank?
A bank is a financial institution licensed to receive deposits and make loans. Banks may
also provide financial services such as wealth management, currency exchange, and safe
deposit boxes. There are several different kinds of banks including retail banks, commercial or
corporate banks, and investment banks. In most countries, banks are regulated by the national
government or central bank.

Banking Institution
 Types of banks

Retail banks -are probably the banks you’re most familiar with. Your checking and savings
accounts are often kept with a retail bank, which focuses on consumers (or the general public)
as customers. These banks offer loans and may provide credit cards, and they’re the ones with
numerous branch locations in populated areas.

Commercial banks -focus on business customers. Businesses need checking accounts just like
individuals do. But they also need complex services, and the dollar amounts (and the number of
transactions) can be substantial. Commercial banks, which are also called business banks or
corporate banks, manage payments for customers, provide lines of credit to manage cash flow,
and offer foreign exchange services for companies that do business overseas.

Investment banks -help businesses raise capital in financial markets. If a company wants to go
public or sell debt to investors, it often uses an investment bank. This kind of bank also may
advise corporations on mergers and acquisitions.

Private banks -provide services exclusively to wealthy clients, usually those with at least $1
million of net worth. They help clients manage their wealth, provide tax advice, and set up
trusts to avoid taxes when leaving money to descendants.

Central banks -manage the monetary system for a government. For example, the Federal
Reserve is the U.S. central bank responsible for supervising banks and setting monetary policy
to control inflation, reduce unemployment, and provide for moderate lending rates.

Credit unions -are similar to banks, but they are not-for-profit organizations owned by their
customers. (Investors own most banks.) Credit unions offer products and services more or less
identical to retail banks. The main difference is that credit union members share some
characteristic in common—where they live, their occupation, or an organization they belong to.

Online banks -operate entirely online; there are no physical branch locations available to visit
with a teller or personal banker. Many brick-and-mortar banks also offer online services, such
as the ability to view accounts and pay bills online, but internet-only banks are different.
Internet banks often offer competitive rates on savings accounts, and they’re especially likely to
offer free checking.

Mutual banks -are similar to credit unions because they are owned by members (or customers)
instead of outside investors. Also like credit unions, they tend to be active in only a single
community.

Savings and loans -are less prevalent than they used to be, but they are still important. This
type of bank helped make home ownership mainstream, using savings deposits from customers
to fund home loans. The name savings and loan is derived from that core activity.

Banking Institution
1.5 Economic Significance of Banks

Banks in the modern economy are profit maximizing businesses. The simple
explanation is that banks allow for the secure depositing of money for individuals and
businesses. However, when banks receive a substantial amount of deposits, it becomes
irrational to simply let the money sit there. As a result, banks then invest this money and
have it earn interest for the bank and the depositor. From this, banks became central actors in
the modern economic system.

Features
Using a very simple model, when banks collect deposits, they seek to make this
money “work” for them through investing it by lending it out to others. Since it is unlikely
that depositors will demand their money all back at once, the bank can leverage its deposit
collection to back larger and larger risks. In other words, they will use their deposit money to
leverage larger loans and investments, thus keeping only a fraction of their deposits actually
on hand. This is called “fractional reserve” banking.

Significance
The main area of significance for banks in modern financial systems are as mediators
of risk. Banks are for-profit organizations that seek to use depositors’ funds as backing for
long term investment. The brief formula is that banks collect deposits from individuals, these
deposits are used as collateral for raising funds on money markets, and these funds are then
put into long term investments.

Function
Banks lend a portion of depositors' money to businesses that the bank believes will
make money, hence making money for their depositors. There is no good reason for deposit
money to merely collect dust in vaults, so it is lent out to those who the bank have approved
in advance as a good credit risk. This means that banks oversee investments, using depositors'
money as backing. Since bank loans are the main source of funding for businesses, banks
actually have a massive role in overseeing investments globally.

Effects
The main effect of the significance of banks is that they have a hand in nearly all
investments made in the modern economy. When one takes out a mortgage to buy a house,
the bank has determined that the borrower is a good credit risk and is likely to pay the money
back, including the interest which is the bank's “cut,” for taking the risk in the first place. The
major concept is that since most capital is raised through banks, banks then control most
investments.

Considerations
When banks lend money to investors, this loan means several things: a) that the bank
actually owns the enterprise (house, business, car, etc.) until the money is paid off; and b)
these investments are all mediated by the bank, which means that banks measure and approve
(or reject) the risks investors take. If too many investments fail, the bank fails, and the
depositors' money goes to the entity that takes over the failing or failed bank. Since the 1930s,

Banking Institution
 however, deposits are backed by the federal government, guaranteeing individual deposits up
to $250,000 up until 2014, when the covered maximum per account goes back to $100,000.

1.6 Why the state supervises Banks

State banks are mainly regulated by the states, but the Federal Reserve and the FDIC
still have some authority even with state banks, and states also have some authority over
national banks. The Supreme Court recently ruled[i] that federal banking regulations do not
preempt states from enforcing their own fair-lending laws.

Banks are regulated by both state and federal regulators. Virtually all banks are
regulated and examined by their deposit insurers, either the Federal Deposit Insurance
Corporation (FDIC), which insures most banks, or the National Credit Union, which insures
credit unions. Most state banks and all national banks are also members of the Federal Reserve,
which oversees and regulates their operation. The Federal Reserve also has some regulatory
oversight over nonmember banks.

National banks with a federal charter are also regulated either by the Office of the
Controller of the Currency (OCC) or by the Office of Thrift Supervision (OTC).
Traditionally, the OCC covered commercial banks and the OTS covered savings banks, but,
because most banks are offering the same services, there is little distinction between the two.
Hence, banks can choose either regulatory agency by changing their charter, and since these
federal agencies collect fees from banks for their oversight, they strive to get more members.
This creates a regulatory competition between the OCC and the OTC, where each eases their
restrictions to attract more new members. OTC reduced its restrictions so much that during the
Great Recession of 2008, IndyMac Bancorp, Washington Mutual, and Downey Savings and
Loan Association — all supervised by the OTC — were seized by the federal government;
others were taken over by healthier institutions.

Banking Institution
II. Government Banking Institutions
2.1 Land Bank of the Philippines

Brief History of Land Bank

Land Bank of the Philippines (LBP) was created by Republic Act 3844 (Agricultural
Land Reform Code) on 8 August 1963, as amended. RA 7907 amended LBP charter on 23
February 1995 and increased its capitalization to P9.0 billion. Authorized capitalization was
further increased on 25 August 1998 to P 25 Billion by the DOF and the President of the
Philippines. LBP is the premier government financial institution mandated to spur countryside
development. It is the official depository bank of the Republic of the Philippines.

Land Bank of the Philippines

The Land Bank of the Philippines (LANDBANK) is a government financial institution
that strikes a balance between fulfilling its social mandate of promoting countryside
development, and remaining financially viable. This dual function makes LANDBANK unique.
The profits derived from its commercial banking operations are used to finance the bank's
developmental programs and initiatives.
Over the years, LANDBANK has successfully managed this balance as evidenced by
the continued expansion of its loan portfolio in favor of its priority sectors: small farmers and
fishers, a good part of which are agrarian reform beneficiaries; micro, small and medium
enterprises; agri- and aqua-projects of local government units and government-owned and
controlled corporations; and projects related to communications, transportation, housing,
education, health care, environment, tourism, and utilities.

LANDBANK is the largest formal credit institution in the rural areas of the Philippines
and ranks among the top five commercial banks in the country in terms of deposits, assets and
loans.

The bank also has investments and experiences in the transport and energy sectors. Based
on its strengths and reach, LANDBANK as a direct access entity is primed to implement the
following potential priority projects/programs in the next five years:

 Sustainable transport
 Climate resilient agriculture
 Off-grid renewable energy
 Ensuring climate resilient water supplies

Government Banking Institution

 Products and Services

Overseas Filipino ATM Account

Card-based type of Savings Account intended primarily for Overseas Filipinos and their
beneficiaries. Opening amount and maintaining balance is only Php 100.00.

Issued in two forms: generic and personal. The generic card is issued by LBP Overseas
Officers and other ORG designated personnel upon application while the personal cards are
issued by LANDBANK branches with the account holder’s name embossed in the card.

OFW Passbook Account

Passbook-based Savings Account available at LBP Branches. It can be opened by the
Overseas Filipino or his/her designated beneficiary.

Opening amount is Php 100.00 but Average Daily Balance (ADB) required is Php 5,000.00.

US Dollar Passbook Account

Passbook-based USD Savings Account available at LBP Branches. It can be opened by
the Overseas Filipino or his/her designated beneficiary.

Opening amount is USD 10.00 but Average Daily Balance (ADB) required is USD 10.00. To
earn interest, ADB required is USD 500.00. Deposit to this account is represented in US
Dollars and other currencies are not accepted.

LANDBANK Remittance Service (thru Remittance Partners)

 Direct Credit to LANDBANK accounts (CA/SA)

 Credit to other banks'account (through PESONet)
 Cash pick-up via any LANDBANK branch
 Cash pick-up via Partner Paying Agents (Palawan Pawnshop, LBC, RD Pawnshop, Puregold,
etc.)
 SMS Notification

2.2 Development Bank of the Philippines

The Development Bank of the Philippines (DBP) is a state-owned development
bank headquartered in Makati City, Philippines.
It is the eight-largest bank[2] in the Philippines in terms of assets with assets of more than P669-
billion as of 2018.[3] It is the second-largest state-owned bank. It is also one of the largest
government-owned and controlled corporations (GOCCs) in the Philippines.
It has 137 branches as of December 2018.

Government Banking Institution

History of Development Bank of the Philippines (DBP)
DBP’s history can be traced back during the Commonwealth when the early infrastructure
for development financing was laid by the government.

1935 – The National Loan and Investment Board (NLIB) was created to coordinate and manage
government trust funds such as the Postal Savings Fund and the Teacher’s Retirement Fund.

1939 – The Agricultural and Industrial Bank (AIB), which absorbed the functions of the NLIB,
was created and started to harness government resources until the outbreak of war.

1947 – The government created the Rehabilitation Finance Corporation (RFC) under R.A. No.
85 which absorbed the assets and took over the functions of the AIB. The RFC provided credit
facilities for the development of agriculture, commerce and industry and the reconstruction of
properties damaged by the war.

1958 – The RFC was reorganized into the Development Bank of the Philippines. The change in
corporate name marked the shift from rehabilitation to broader activities.

With an initial capital of P500 million subscribed by the government, the DBP expanded
its facilities and operations to accelerate national development efforts. This forward thrust saw
the establishment of a network of branches throughout the country. The DBP tapped both
foreign and local fund sources to complement its capital resources. Credits were obtained
directly from international financial institutions.

1969 – Construction of the DBP Head Office Building which was completed in 1971.

1986 – Former President Corazon Aquino issued E.O. No. 81 which provided for the 1986
Revised Charter that called for a clean up of DBP’s books, staff reorganization and infusion of
initial operating budget. The rehabilitation program restored its financial viability and DBP
resumed lending operations.

With the transfer of non-performing assets together with liabilities in June 30, 1986 to the
National Government, the DBP implemented an institutional strengthening program covering a
thorough revision of the credit process and a training program for the intensive implementation
of new lending thrusts. The Bank likewise reopened its lending windows for housing,
agriculture, and small and medium scale industries.

1995 – The DBP was granted an expanded banking license and attained universal banking
status.

1998 – Former President Fidel V. Ramos signed R.A. 8523 amending DBP’s 1986 Charter.
Among the major provisions incorporated in the new DBP Charter were the increase of
President and CEO.

These developments paved the way for the pursuit of other activities that allowed the Bank
to fulfill its development mandate more meaningfully.
Government Banking Institution
 Products and Services

The DBP Electronic Cash Remittance (EC Remit) provides overseas Filipinos
(OFs/OFWs) with a SAFER (Secure, Affordable, Fast, Efficient & Reliable) way of remitting
hard-earned money to beneficiaries and loved-ones in the Philippines. DBP remittance services
include a combination of traditional and electronic-based remittance services such as fund
transfers and payments through ATMs/banks, non-bank service providers (like pawnshops and
rural banks), electronic payments, and online banking facilities.

DBP Electronic Cash Card (EC Card)

1. DBP EC Card – is a convenient card-based savings account designed for OFWs and OFW
Beneficiaries. Send money from any DBP remittance office or Remittance Partner around the
world, and quickly withdraw cash from any DBP automated teller machine, or any ATM of
BancNet.

2.WORRY FREE – zero initial deposit; zero maintaining balance

3.CONVENIENT – access to account 24/7, anywhere in the world (thru www.devbnkphl.com)

4.SAFE – secured with personalized PIN

5.INTEREST- EARNING ACCOUNT – earn the best savings rate with DBP!

6.INSURED – with PDIC up to a maximum of P500,000 per account holder

2.3 Philippine Amanah Bank

Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP) is a universal bank
authorized to perform and provide Islamic banking, financing and investment services pursuant
to R.A. 6848, otherwise known as the Charter of the Al-Amanah Islamic Bank of the
Philippines of 1990. In 2008, AAIIBP became a subsidiary of Development Bank of the
Philippines, owning 99.9% of its capital stock, which introduced its current logo and tag name.
“Amanah Islamic Bank”.

HISTORY
In 1973, Presidential Decree No. 264 created the Amanah Islamic Bank with an initial
capitalization of 50 Million pesos. Intended to become a development bank, it invested 75% of
its total loanable funds on providing, among others, reasonable medium and long-term credit
facilities for the people of the Muslim-dominated provinces in Cotabato, South Cotabato, Lanao
del Sur, Lanao del Norte, Sulu, Basilan, Zamboanga del Norte, Zamboanga del Sur and
Palawan.
In 1974, Presidential Decree No. 542 retuned the direction of the Bank to adopt the "no
interest principle" in Islamic banking and partnership principles. However, the lack of

Government Banking Institution

recognition and support of Islamic banking in the Country made the Bank less competitive in
the predominantly conventional banking in the Country.
In 1990, the Bank became a Universal Bank through enactment of Republic Act No. 6848,
otherwise known as the Charter of Al-Amanah Islamic Investment Bank of the Philippines
(AAIIBP), with an authorized capital stock of P1 billion consisting of 10 million common
shares. Its mandate is primarily to participate in the socio-economic development of the
Autonomous Region of Muslim Mindanao (ARMM) by promoting and utilizing Islamic
banking, financing and investment in agricultural, commercial and industrial ventures in the
ARMM.
By mid-1990, three (3) of its branches, Cotabato, Marawi and Jolo began accepting and
transforming ordinary deposits into Islamic deposits. The other branches have been transacting
both conventional and Islamic banking products, services and facilities. From 1990 to 2007,
AAIIBP managed its operation with the support of the Bureau of Treasury.
On October 30, 2008, the Development Bank of the Philippines (DBP) obtained
ownership of the 99.9% shareholdings by acquiring the shares of the National Government,
SSS and GSIS. It was on November 14, 2007 when DBP approved the acquisition of AAIIBP
and on July 16, 2008 it took over full control of AIIBP’s operation.
On October 22, 2009, the Monetary Board approved the Bank's 5-year Rehabilitation
Plan, which focused on four corporate strategies (4Rs), namely, Recapitalization, Restoration
of Financial Viability, Reorganization and Reforms Institutionalization. Under
the Rehabilitation Plan, AAIIBP is allowed to continuously do both conventional and
Islamic banking.
In November 2009, DBP, marking the partial completion of recapitalization strategy,
infused Php1.0 billion capital to AAIIBP.

Services/Products of ALMAHAH BANK

Islamic
 Current Account under \"Wadiah\"
 Savings Account under \"Wadiah\"
 General Investment Account under \"Profit Sharing Scheme\"
 Pilgrimage Savings Plan (PSP)
 Current Account
 Savings Account
 Time/Special Savings

Other Services
 Collection Agreement
 Payroll Service
 Fund Transfer/OFW Remittance

Government Banking Institution

III. Commercial Banks

Commercial bank refers to a financial institution that accepts deposits, offers checking
account services, makes various loans, and offers basic financial products like certificates of
deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank is
where most people do their banking. Commercial banks make money by providing and earning
interest from loans such as mortgages, auto loans, business loans, and personal loans. Customer
deposits provide banks with the capital to make these loans.

3.1 Organization and Capitalization

Organization and Capitalization of commercial banks, like any other corporation, is
organized by at least 5 but not more than 15 persons who are known as incorporators, the other
owners of the bank known as comparator or stock holder sometimes called subscribes when
they initially negotiate to own certain shares of stocks in the banks.
ff. information;
1. The Name of the bank
2 .The purpose which bank is organized
3. The location of the head office of the banks
4. The term of existence of banks
5. The names,residence and citizenship of incorporators
6. The names, residence, citizenship of the directors
7. The capital stock of bank preferred and common stock
8. The amount of preferred and common stock
9. The name of treasurer elected by incorporators
10. The incorporators shall adapt a code of By –laws which contain among things,the
affairs of the bank, the diff.
3.2 Operations

1. Accepting Deposits
Accepting deposits is one of the oldest functions of a commercial bank. When banks
started, they charged a commission for keeping money on behalf of the public. With the
changes in the banking industry over the years and the profitability of the business, banks now
pay a small amount of interest to the depositors who keep money with them. However,
depositors also incur administrative fees to maintain their accounts.
Banks accept three types of deposits. The first one is the savings deposit for small savers
who are paid interest on their accounts. They can withdraw their money up to a limited amount
by writing a cheque. The second type of deposit is the current account for people in business
who can withdraw their money at any time without notice. Banks do not typically pay interest
on deposits held in current accounts. Instead, the account holders are charged a nominal fee for
the services rendered.
The last type of deposit is the term or fixed deposit. Customers who have money that
they do not need for the next six months or more can save in the fixed account. The rate of
interest paid increases with the length of the fixed deposit. Customers can only withdraw the
money at the end of the agreed period by writing to the bank.

Commercial Banks
2. Advancing Credit Facilities
Advancing loans is an essential function of banks since it accounts for the highest
percentage of revenue earned annually. Banks mostly offer short-term and medium-term loans
from a percentage of the cash deposits at a high interest rate. They do not provide long-term
financing due to the need to maintain liquidity of assets. Before advancing loans to customers,
banks consider the borrower’s financial status, business profitability, nature and size of the
business, and ability to repay the loan without default.
3. Credit Creation
While granting loans to customers, banks do not provide the loan in cash to the
borrower. Instead, the bank creates a deposit account from which the borrower can draw funds.
This allows the borrower to withdraw money by cheque according to his needs. By creating a
demand deposit in the borrower’s account without printing additional money, the bank
increases the amount of money in circulation.
4. Agency Functions
Commercial banks serve as agents of their customers by helping them in collecting and
paying cheques, dividends, interest warrants, and bills of exchange. Also, they pay insurance
premiums, utility bills, rent, and other charges on behalf of their clients.
Banks also trade shares, securities, and debentures, and they provide advisory services for
customers that want to buy or sell these investments. In property administration, commercial
banks act as trustees and executors of the estate on behalf of their customers. Banks charge a
nominal fee for the agency functions performed on behalf of their clients.
Other Functions
Apart from the above primary functions, banks also perform several other functions.
They provide foreign exchange to clients who are in the import and export business, by buying
and selling foreign currency. However, banks must get permission from the regulatory body,
mainly the central bank, before dealing with foreign exchange.
A commercial bank also acts as a custodian of precious stones and other valuables. They
provide customers with lockers where they can put their jewelry, precious metals, and crucial
documents. Such items are more secure when stored at the bank than keeping them at home
where they may be stolen or damaged.
BanksCommercial bankscover the widest range of functions among all financial
intermediaries. Regular commercial banks to institutions which in addition to other
functions could acceptdeposits called demand deposits subject to withdrawal of checks.
Universal banksaside from the function of expanded commercial banks are
authorized toperform functions of an investment house like underwriting and
securities dealership and toinvest their equities of both financial and non-financial entities.

Commercial Banks
IV.Thrift Banks
A thrift bank, also known as a savings and loan association, is a form of a financial
institution that provides basic banking services by offering a variety of savings options and
mortgage loan services and just like commercial banks these too qualify as a depository
institution and may even provide a range of other products and services.

4.1 Nature
A thrift bank–also just called a thrift–is a type of financial institution that specializes in
offering savings accounts and originating home mortgages for consumers. Thrift banks are also
sometimes referred to as Savings and Loan Associations (S&Ls). Thrift banks differ from larger
commercial banks, like Wells Fargo or Bank of America, because they usually offer higher
yields on savings accounts and provide limited lending services to businesses.

4.2 Kind
1.Savings Bank- These types of banks generate funds from the sale of saving deposits to the
customers and investing the same in offering mortgage loans.
2.Private Development Bank- These types of banks are formed for supporting government
policies.
3.Stock Savings and Loan Associations- It is a locally or privately managed financial
4.banking institution that takes long term deposits into use for providing amortized home loans.

4.3 Capitalization
The Bangko Sentral head also said thrift banks are well-capitalized as the industry’s the
capital adequacy ratio as of end-December 2019 rose to 17.5 percent from the previous year’s
16.0 percent, which is well the minimum thresholds set by the BSP and the international norm.

4.4 Operation
These banks are financial institutions that function for the purpose of relieving the
monopoly stress and offering their account holders with facilities like savings accounts,
mortgage loans, etc. The functions are to accept deposits and offering mortgage loans to their
customers.
The interest on the savings deposited by the customers in the bank is high. In contrast,
the interest on the mortgage loan availed by the customers is relatively lower as compared to
commercial banks and credit unions.
The thrift banks are formed to offer their customers with mortgage loan facilities and
enable them to make savings from time to time. It also focuses on relieving the mortgage and
lending market from a monopoly of domestic or foreign banking institutions.
These banks also function to offer mortgages at lower cost and savings accounts that
pay a higher rate of interest in comparison to national and international banking institutions.
These banks function in the best interest of the local people, and for this reason, they offer
savings accounts and mortgage loans that could benefit the locals.

Thrift Banks
V.Rural Banks
Rural banks are private, unit banking institutions based in the rural areas which mobilise
financial resources and control and extend credits to farmers, cottage industrialists and other
rural-based economic operators in their defined area of operation. They have no branches but
work through a network of agencies and mobilization centres.
5.1 Organization
-organized in a form of a stock corporation with no less than five nor more than fifteen
incorporators.
Qualifications:
- Filipino citizenship, of good moral character and integrity, financial capacity in their own
rights to meet their commitments, good credit standing, and not convicted of any crime
involving moral turpitude.
The rural bank shall have a paid-up capital of not less than P500,000, the initial amount
of P300,000 to be put up at the start of operations and remaining P200,000 to be paid within a
period of three years from the start of operation.
The authorized capital of the rural bank shall not be less than P1Million and shall be
divided into common and preferred stock, both with par value of from P10 to P100 per share.
5.2 Operations
The main business of a rural bank to mobilize resources locally and to on-lend the same
to the people in the area. In other words, they operate in rural communities and specialize in the
extension of credit to present farmers, fishermen, rural entrepreneurs such as cottage
industrialists and traders in rural areas.
5.3 Functions
The main business of a rural bank to mobilize resources locally and to on-lend the same
to the people in the area. In other words, they operate in rural communities and specialize in the
extension of credit to present farmers, fishermen, rural entrepreneurs such as cottage
industrialists and traders in rural areas.
The entire resources of all rural banks are generated locally. There is no funding from the
Central Bank and Central Government or from International Agencies. In a few instances, some
banks have obtained international assistance for specific purposes. A rural bank therefore is as
strong as it is able to generate sufficient resources and be able to manage them efficiently.
Currently the Government of Ghana has sought assistance of the World Bank and International
Development Association (IDA) to restructure all the banks and, where necessary, recapitalize
them.

Rural Banks
5.4 Services of Rural Banks
1) Grant loans and make investments in accordance with existing rules and regulations.
2) Accept savings and time deposits.
3) Sell domestic drafts.
4) Act as correspondent for other financial institution
5) Receive in custody funds, documents, and other valuable objects, and rent safety deposit
boxes for the safeguarding of such objects.
6) Act as financial agent, buy and sell, by order of and for the account of its customers,
shares, evidences of indebtedness and all types of securities.
7) Make collections and payments for the account of others and perform such other
services for its customers as are not incompatible with banking business.

Rural Banks
VI.Government Non Banking Financial Institutions
A non-banking financial institution or non-bank financial company is a financial
institution that does not have a full banking license or is not supervised by a national or
international banking
6.1 Government Service Insurance System (GSIS)
The Government Service Insurance System (Filipino: Paseguruhan ng mga
Naglilingkod sa Pamahalaan, abbreviated as GSIS) is a government-owned and controlled
corporation (GOCC) of the Philippines. Created by Commonwealth Act No. 186 and Republic
Act No. 8291 (GSIS Act of 1997), GSIS is a social insurance institution that provides a defined
benefit scheme under the law. It insures its members against the occurrence of certain
contingencies in exchange for their monthly premium contributions.
BENEFITS AND SERVICES
The principal benefit package of the GSIS consists of compulsory and optional life
insurance, retirement, separation, and employee’s compensation benefits.
SERVICE PRIVILEGES
GSIS offers the following loan products to assist you with your financial needs:
Enhanced Consolidated Salary Loan (ConsoLoan) Plus, Policy Loan, Enhanced Emergency
Loan, Pension Loan, and Pensioners Emergency Loan.

6.2 The Social Security System (SSS)

The Social Security System (SSS; Filipino: Paseguruhan ng Kapanatagang Panlipunan)
is a state-run, social insurance program in the Philippines to workers in the private, professional
and informal sectors. SSS is established by virtue of Republic Act No. 1161, better known as
the Social Security Act of 1954. This law was later amended by Republic Act No. 8282 in 1997.
Government employees, meanwhile, are covered under a separate state-pension fund by the
Government Service Insurance System (GSIS).
SERVICES
SSS provides death, funeral, maternity leave, permanent disability, retirement, sickness
and involuntary separation/unemployment benefits.The Employees’ Compensation (EC)
Program which started in 1975 provided double compensation to workers who had illness,
accident during work-related activities, or died. EC benefits are granted only to members with
employers other than themselves.
SSS members can make ‘salary’ or ‘calamity’ loans. Salary loans are calculated based
on a member’s particular monthly salary credit. Calamity loans are for instances when the
government has declared a state of calamity in the area where an SSS member lives, following
disasters such as flooding and earthquakes.

Government Non banking Financial Institutions

6.3 Pag-ibig (HDMF)
The Home Development Mutual Fund (abbreviated as HDMF), more popularly known
as the Pag-IBIG Fund, is a Philippine government-owned and controlled corporation under the
Department of Human Settlements and Urban Development responsible for the administration
of the national savings program and affordable shelter financing for Filipinos employed by
local and foreign-based employers as well as voluntary and self-employed members. It offers its
members short-term loans and access to housing programs.
The most popular program benefit of the Pag-IBIG Fund offers assistance to its
members by providing affordable financing for their housing needs. HDMF accomplishes this
by working in partnership with the local Real Estate Developers and arranging affordable loans
to real estate buyers (Pag-IBIG members).
The loan had a lower interest rate compared to the prevailing rate in the market and
payable in longer terms. Pag-IBIG Fund offers a home loan at a low interest rate of 4.5% (for
₱450,000 loan) with a loan term of up to 30 years. A qualified member can get a maximum loan
amount of up to ₱ 6 Million.
6.4 Phil Health Insurance
The Philippine Health Insurance Corporation (PhilHealth) was created in 1995 to
implement universal health coverage in the Philippines. It is a tax-exempt, government-owned
and controlled corporation (GOCC) of the Philippines, and is attached to the Department of
Health. Its stated goal is to “ensure a sustainable national health insurance program for all”,
according to the company. In 2010, it claimed to have achieved “universal” coverage at 86% of
the population, although the 2008 National Demographic Health Survey showed that only 38
percent of respondents were aware of at least one household member being enrolled in
PhilHealth. Nevertheless, this social insurance program provides a means for the healthy to pay
for the care of the sick and for those who can afford medical care to subsidize those who cannot.
Both local and national governments allocate funds to subsidize the indigent.
PhilHealth and beneficiaries have access to a comprehensive package of services,
including inpatient care, catastrophic coverage, ambulatory surgeries, deliveries, and outpatient
treatment for malaria and tuberculosis. Those identified as indigent and OFW are also entitled
to outpatient primary care benefits (PCB1) or TSEKAP.

Government Non banking Financial Institutions

VII. Pawnshop
What is pawnshop?
A pawn shop (also called a pawnshop or pawnbroker) is a shop or business who loans
money to people who bring in valuable items which they leave with the pawnbroker. Examples
of items that a person may leave are jewelry, gold, watches, cameras, musical instruments,
televisions or computers.
The valuables that people leave are called the "collateral". The person can get their
valuable item back from the pawnbroker if they pay back the money they were loaned and pay
interest on the loan. Interest is like a fee for getting to use someone else's money for a set time
period. If the person who has borrowed money from the pawnbroker does not repay the loan
and interest within an agreed-upon time limit, the pawnbroker can sell the valuable item to
another customer to get back the money they loaned.

7.1 Governing
Under the law, pawners have 90 days after maturity to redeem their pawned articles and
pawnshops must notify their clients within the 90 day period before they can sell the pawned
items in an auction.

7.2 Functions
Pawnshops make money by providing personal loans, reselling retail items, and offering
auxiliary services, such as money transfers or cellphone activation. Earning interest on loans
and profits on retail sales are the principal income sources for the standard business model for a
pawnshop. Pawnshops typically aim to generate overall net profit margins of at least 15% to
25%.

7.3 Natures
Pawn shops offer the opportunity to sell goods or take out short-term loans with used
merchandise as collateral. They are small businesses by nature because both the items
exchanged and the loans paid out are low in value. While pawn shops typically don’t bring in
large profits, the start-up costs are relatively small.

Pawnshop
VIII. Private Insurance Companies
The word “private” is used to describe any health insurance plan that is not run by the
federal or state government. Private insurance can be purchased from a variety of sources: your
employer, a state or federal marketplace, or a private marketplace.
There are a wide variety of options when it comes to private health insurance plans. All
private health insurance plans are designed to split the cost between you and the insurer,
making medical care more affordable for you. These cost-sharing methods come in the form of
deductibles, copays, and coinsurance. When shopping for a plan, look for the right balance
between the monthly cost of the plan and the cost sharing methods.
The opposite of a private insurance plan is a public insurance plan. There are a few
government-run health insurance plans you may be aware of. Medicaid is a state-run insurance
that helps people with low incomes pay for health care services. Medicare is a similar program
for people age 65 and older. Another popular government-run program is CHIP, the Children's
Health Insurance Program, which provides free or low-cost health insurance to children who
otherwise are not covered by a private plan or Medicare.

8.1 Functions
So, insurance functions are; The system to spread the risk over several persons who are
insured against the risk; The principle to share the loss of each member of the society based on
the probability of loss to their risk; and. The method to provide security against losses to the
insured.
8.2 Nature
Insurance companies base their business models around assuming and diversifying risk.
The essential insurance model involves pooling risk from individual payers and redistributing it
across a larger portfolio. Most insurance companies generate revenue in two ways: Charging
premiums in exchange for insurance coverage, then reinvesting those premiums into other
interest-generating assets.

Private Insurance Companies

IX. Investment Companies
What is investment company?
An investment company is a financial institution principally engaged in investing in
securities. These companies in the United States are regulated by the U.S. Securities and
Exchange Commission and must be registered under the Investment Company Act of 1940.
An investment company is also known as "fund company" or "fund sponsor." They
often partner with third-party distributors to sell mutual funds.
Investment companies are business entities, both privately and publicly owned, that
manage, sell and market funds to the public. The main business of an investment company is to
hold and manage securities for investment purposes, but they typically offer investors a variety
of funds and investment services, which include portfolio management, recordkeeping,
custodial, legal, accounting and tax management services.

9.1 Governing Law

The primary law that governs investment companies is the Investment Company Act of
1940 (the “Investment Company Act”). Investment companies are also subject to other federal
securities laws (e.g., the Securities Act of 1933) (the “Securities Act”) and the Securities
Exchange Act of 1934).

9.2 Types
 Open-end Investment Companies:
These companies raise capital through issue of shares, which are not traded on stock
exchanges, but handled by specified dealer in over-the-counter transactions. The money
obtained from the sale of share is invested directly in the shares of other companies.
 Closed-end Investment Companies:
These companies operate in much the same fashion as any industrial company. It issues
a fixed number of shares, which may be listed on a stock exchange and bought and sold like
any company’s shares. If the management desires, it might revise additional equity issues,
bonds or preferred stock issues. Majority of such companies have bonds and preferred stocks
outstanding as a part of their capital structure.

Investment Companies
X. Credit Cooperatives
10.1 History of Cooperatives
Early years, Cooperatives are best understood as groups of people who have the same
needs. These needs include insurance, money lending and saving, achieving economies of scale
or marketing goods.
Early cooperatives were groups created in times of difficulty where people needed to
band together to survive, especially regarding the need to help one another in difficult rural
conditions.
The first recognized cooperative business is the “Philadelphia Contributionship for the
Insurance of Houses from Loss by Fire”. It was established in 1752 and, interestingly,
Benjamin Franklin was one of its founders and it is still in operation today. Early cooperatives
simply agreed to split the cost of fire damage that any of the members suffered, with the
knowledge that their fellows would do the same for them in return.
It was modeled on the Amicable Contributionship of London which similarly offered to
mutually split the costs of damages amongst its members.
10.2 Principles of Cooperatives
1. Open and Voluntary Membership- Membership in a cooperative is open to all people who
can reasonably use its services and stand willing to accept the responsibilities of membership,
regardless of race, religion, gender, or economic circumstances.
2. Democratic Member Control- Cooperatives are democratic organizations controlled by
their members, who actively participate in setting policies and making decisions.
Representatives (directors/trustees) are elected among the membership and are accountable to
them. In primary cooperatives, members have equal voting rights (one member, one vote);
cooperatives at other levels are organized in a democratic manner.
3. Members’ Economic Participation- Members contribute equitably to, and democratically
control, the capital of their cooperative. At least part of that capital remains the common
property of the cooperative. Members allocate surpluses for any or all of the following purposes:
developing the cooperative; setting up reserves; benefiting members in proportion to their
transactions with the cooperative; and supporting other activities approved by the membership.
4. Autonomy and Independence- Cooperatives are autonomous, self-help organizations
controlled by their members. If they enter into agreements with other organizations, including
governments, or raise capital from external sources, they do so on terms that ensure democratic
control as well as their unique identity.
5. Education, Training, and Information- Education and training for members, elected
representatives (directors/trustees), CEOs, and employees help them effectively contribute to

Credit Cooperatives
the development of their cooperatives. Communications about the nature and benefits of
cooperatives, particularly with the general public and opinion leaders, help boost cooperative
understanding.
6. Cooperation Among Cooperatives- By working together through local, national, regional
and international structures, cooperatives improve services, bolster local economies, and deal
more effectively with social and community needs.
7. Concern for Community- Cooperatives work for the sustainable development of their
communities through policies supported by the membership.

Credit Cooperatives
XI. International Financial Institutions
11.1 World Bank
The World Bank is an international financial institution that provides loans and grants to
the governments of low- and middle-income countries for the purpose of pursuing capital
projects.[5] It comprises two institutions: the International Bank for Reconstruction and
Development (IBRD), and the International Development Association (IDA). The World Bank
is a component of the World Bank Group.
Development Policy Financing provides IBRD loan, IDA credit/grant and guarantee
budget support to governments or a political subdivision for a program of policy and
institutional actions to help achieve sustainable, shared growth and poverty reduction.
11.2 International Monetary Fund
The International Monetary Fund (IMF) is an international organization that promotes
global economic growth and financial stability, encourages international trade, and reduces
poverty. Quotas of member countries are a key determinant of the voting power in IMF
decisions. Votes comprise one vote per 100,000 special drawing right (SDR) of quota plus basic
votes. SDRS are an international type of monetary reserve currency created by the IMF as a
supplement to the existing money reserves of member countries.
The IMF’s mission is to promote global economic growth and financial stability,
encourage international trade, and reduce poverty around the world.
The IMF was originally created in 1945 as part of the Bretton Woods agreement, which
attempted to encourage international financial cooperation by introducing a system of
convertible currencies at fixed exchange rates.
11.3 Asian Development Bank
The Asian Development Bank (ADB) is a regional development bank established on 19
December 1966,[4] which is headquartered in the Ortigas Center located in the city of
Mandaluyong, Metro Manila, Philippines. The company also maintains 31 field offices around
the world[5] to promote social and economic development in Asia. The bank admits the
members of the United Nations Economic and Social Commission for Asia and the Pacific
(UNESCAP, formerly the Economic Commission for Asia and the Far East or ECAFE) and
non-regional developed countries.[6] From 31 members at its establishment, ADB now has 68
members
Public Sector (Sovereign) Financing. Financial products for developing member country
governments and public sector entities. Private Sector (Nonsovereign) Financing.
Cofinancing. Results-Based Lending (RBL) for Programs. Trade and Supply Chain
Finance Program. Funds and Resources

International Financial Institutions

11.4 Other Financial Institution
Other Financial Institutions- Apart from banks, there are other institutions that carry out
financial services and activities, these intermediaries play an important role in the economy.
The various types of financial institutions that give banks competition are,
1. Term Lending Institutions: Term Lending Institutions provide term loans to various
industries, services and infrastructure sectors to help them with new projects and
expansions of existing facilities. At a national level, these institutions are typically
specialized, catering to the needs of specific sectors. These include the,
 Export Import Bank of India (EXIM Bank)
 Small Industries Development Bank of India (SIDBI)
 Tourism Finance Corporation of India Limited (TFCI)
 Power Finance Corporation Limited (PFCL)
 IFCI Ltd
 State Financial Corporation (SFCs)
 State Industrial Development Corporation (SIDCs)
 North Eastern Development Financial Institutions Ltd. (NEDFI)

2. Non-Banking Finance Companies (NBFCs): The principle activities of NBFCs include

equipment-leasing, hire purchase, loan and investment and asset finance. NBFCs have been
competing with and complementing the services of commercial banks for a long time.
Housing-finance companies form a distinct sub-group of the NBFCs. Some of the
examples of NBFCs are,
 Housing Development Finance Corporation Limited (HDFC)
 Housing and Urban Development Corporation Limited (HUDCO)

3. Insurance Companies: Insurance/reinsurance companies provide substantial long-term

financial assistance to the industrial and housing sectors. Such companies are,
 Life Insurance Corporation of India (LIC)
 General Insurance Corporation of India (GICI)

4. Mutual Funds: Mutual Funds aid fund mobilization, in that they offer alternate routes of
investment to household. Most of the MFs arestandalone asset management companies.
Banks have entered the asset management business either on their own or joint venture
with others. A few Mutual funds organization are,
 UTI Mutual Funds  SBI Mutual Funds
 HDFC Mutual Funds  Reliance Mutual Funds
 Tata Mutual Funds  DSP Black Rock Mutual Funds

International Financial Institutions