Drilon, Erron L.

September 22, 2020

ITTM 106
Face of the Philippine’ Financial System
Considered as one of the hearts of human being is its financial system, it is definitely
because if ever it stops working, it will be the end of the economy. The world utilizes the concept
of the exchange of supply and demand ever since the year of 1490s for living. Simply, without
appropriate, strategic, precise, logical, and futuristic financial system, there will be no hope to
keep the lives of every people longer. With that, the Philippines’ financial system composed
banking institutions and non-bank financial intermediaries to allocate the resources needed by its
people.
As mentioned by Nataba (2000), the Philippines’ financial system includes commercial
banks, thrift banks, specialized government banks and rural banks. It is also composed of loan
associations, buildings, offshore banking units, investment, brokerage houses, and finance
companies. The mentioned subcomponents keep the economy of the country running starting
when the first Philippine bank was established known as Bank of the Philippine Islands (named
after the mother of Spanish King Alfonso XII) on August 1, 1851. This breakthrough helped the
country to manifest a resilient, productive, and inclusive financial sector.
Certain ways to effectively govern the financial system are when the sectors perform
their assigned responsibilities wherein; the major function of the banking institutions is to
maintain the price stability which is conducive to a balanced and sustainable economic growth.
They are also responsible for providing policy directions in the areas of money, banking and
credit as well as supervising the operations of banks and exercises regulatory powers over non-
bank financial institutions with quasi-banking functions.
Moreover, they also perform the following functions: liquidity management (formulates
and implements monetary policy aimed to influence money supply that is consistent with its
primary objective to maintain price stability), currency issue (legalizes and guarantees public and
private debts),lender of last resort (extends discounts, loans and advances to banking institutions
for liquidity purposes), financial supervision (supervises banks and exercises regulatory powers
over non-bank institutions performing quasi-banking functions), management of foreign
currency reserves (maintains sufficient international reserves to meet any foreseeable net
demands for foreign currencies in order to preserve the international stability and convertibility
of the Philippine peso), and determination of exchange rate policy (adheres to a market-oriented
foreign exchange rate policy principally to ensure orderly conditions in the market) (Bangko
Sentral ng Pilipinas, n.d ).
The Philippine banking system is composed of commercial and universal banks, rural
banks, thrift banks, and cooperative banks. First, the commercial and universal banks represent
the largest simple group and offer the widest variety of banking services among financial
institutions which are authorized to engage in underwriting and other functions of investment
houses, and to invest in equities of non-allied undertakings. Second, the rural and cooperative
banks promote and expand the rural economy in an orderly and effective manner by providing
the people in the rural communities with basic financial services; it is also the banks that help the
farmers on their stages of production starting with the buying of seedlings until it reaches the
marketplace. Lastly, the thrift banking system is engage in accumulating savings of depositors
and investing them. They also provide short-term working capital and medium- and long-term
financing to businesses engaged in services, agriculture, industry and housing, and diversified
financial and allied services, and to their chosen markets and constituencies, especially small-
and medium- enterprises and individuals. Commonly, the thrift banks are composed of mortgage
banks, stock savings, private development, loan associations, and microfinance thrift banks
(Bangko Sentral ng Pilipinas, n.d ).
On the other hand, the non-banking financial institutions are known as a financial
institution that does not have a full banking license and cannot accept deposits from the public.
In the Philippines, it have always been seen as deficient, or of a smaller class, or not as important
to the country when it comes to lending and economic growth. In reality, the opposite is true,
especially in the Philippines, where first opportunities for borrowing and lending are usually
done primarily outside the banking space (Garchitorena, 2020).
Non-banking financial institutions are subdivided to insurance companies, payday
lenders, financial service providers, and institutional investors. Insurance companies are
responsible for risk-pooling institutions with economic risks such as death, damage, and risk of
loss to make return. It is also composed of two types, general and life insurance, wherein the
general insurance is for a short-time and long-time for the life insurance. Meanwhile, the Payday
lenders provide short term loans and limited financial services to a targeted demographic and
help with unsecured business loans. Financial service providers operate on a fee-for-service basis
and offer advice to investors and brokers and improve informational efficiency for investors and
offer a transactions service for investors to liquidate their assets. Lastly, the institutional
investors are the organizations that trade securities in volumes that qualify for lower
commissions (Team Waddle, 2017).
However, the illegitimate management of financial system could lead to a debt crisis
endangering the future generation which would be responsible for paying it. Sadly, the
Philippines reached its downfall on 1983 due to financial vulnerability of the cronies as domestic
financial crisis led to corporate failure. The debt crisis also became a primary cause for a
tremendous drain on fiscal resources, complicating both the achievement of external balance and
the fostering of recovery in the country (Dohner and Intal, 1989).
This means that since the financial system of a country plays an extensive role, the
government as well as its people must be able to learn on how to accurately and genuinely
control the state of their financial system knowing that it greatly affects its economic growth
which is interconnected with the lives of every citizen.
References:

Bangko Sentral ng Pilipinas.( n.d ). Overview of Functions and Operations. Retrieved from
http://www.bsp.gov.ph/about/functions.asp
Bangko Sentral ng Pilipinas.( n.d ).BSP Supervised Banks/ Statistics. Retrieved from
http://www.bsp.gov.ph/banking/bspsup.asp
Dohner, R. & Intal P. (1987). The Philippine Financial System and the Debt Crisis.
Retrieved from https://www.nber.org/chapters/c9051.pdf
Nataba,M. (2000). Philippines Financial System. Retrieved from
http://manilynnataba.weebly.com/financial-system.html
O Rourke, Kevin H. & Williamson, Jeffrey G., (2002). "When did globalisation begin?,"
European Review of Economic History, Cambridge University Press, vol. 6(01), pages
23-50. Retrieved from https://www.nber.org/papers/w7632
‘’Philippine Standard Times’’ (2020). Non-banking financial institutions part of inclusive
growth – CIC. Retrieved from https://www.creditinfo.gov.ph/non-banking-
financial-institutions-part-inclusive-growth-cic
Team Waddle. (2017). Types of non-bank financial institutions & how they can work for you.
Retrieved from https://www.waddle.com.au/blog/types-of-non-bank-financial-
institutions-how-they-can-work-for-you/
World Bank. (2012). Global Financial Development Report 2013: Rethinking the Role of
the State in Finance. World Bank, Washington, DC. Retrieved
from https://www.worldbank.org/en/publication/gfdr