AE 3 – REGULATORY

FRAMEWORK AND LEGAL

ISSUES IN BUSINESS

MIDTERM
PREPARED BY:
Bachelor of Science in Accounting Information System
Block 2
Nina Marie A. Bongator

Mechelle Evangelista

Grace Fuentes

John Lloyd Torregosa

Monsilou Quisto

Jennifer Fernandez

Gareny Rosales

Remedios Mandap
Investor’s Consideration
Banking System Overview

1988- the Philippine banking system has become more streamlined

and stronger since Asian Crisis.This was made possible by the Bangko
Sentral ng Pilipinas (BSP) through the grant of merger and
consolidation incentives to merging and consolidating banks since
1998.

2014-the number of operating banks has been reduced to 648 (which

is a high of 996 in 1998) but this has resulted to a more inclusive
financial system. There are now 9,700 bank branches, 15,695
automated teller machines, 517 microfinance banking offices, and 271
banks with e-banking services such as internet, mobile, phone, e-
wallet and remittance cards. Banks have capitalized on the use of
various electronic banking (e-banking) channels, allowing for greater
access to financial services. E-banking platforms such as electronic
wallet are being offered by 62 banks, internet banking by 44 banks,
cash/remittance cards by 26 banks, and hybrid mobile/internet by 47
banks.
January 2014-universal and commercial banks as well as foreign bank
branches have, pursuant to BSP requirements, adopted the capital
adequacy standards under Basel III.

2014 -the Philippines enacted RA No. 10641 (An Act Allowing the Full
Entry of Foreign Banks in the Philippines, Amending for the Purpose
Republic Act No. 7721), to allow additional foreign banks to apply in
the Philippines either as a branch or as a wholly-owned subsidiary.

The gross non-perfroming loan (NPL) ratio of banks in the Philippines

as of 2014 decreased to 2.3% (from 2.8 percent in 2013). As of June
2015, the total resources of the banking system stood at 11.93 trillion
Philippine pesos. Liquid assets-to-deposit ratio remained strong at
55.6% which is a decrease from last year’s 59.5%.

2001- , the Philippines passed the Anti-Money Laundering Act to

require banks and other financial institutions to report covered and
suspicious transactions to address concerns of the Financial Action
Task-Force (FATF) that the Philippines might still be used for money
laundering.

May 2003-the Act was amended to reduce the covered transactions to

PHP500,000 per banking day.
 -RA 10365
dated 13 February 2013 amended the Act by expanding the coverage
of persons, natural or juridical, who are required to comply with the
law; and activities considered unlawful.

In 2010- the Philippines passed the Exchange of Information on Tax

Matters Act of 2009 which amended RA 1405 and RA 6426.

2013 - the BSP issued an advice to banks and financial institutions in

the Philippines which are considered as foreign financial institutions
or FFIs under the United States’ Foreign Account Tax Compliance Act
(FATCA) to prepare for FATCA compliance.Central Bank.
Definition – is the bank in any country to which has been entrusted
the duty of regulating the volume of currency and credit in that
country- Bank of International Settlement.
 Central Bank

Central Bank

BSP- Bank Sentral ng Pilipinas

- Is the central bank of the Republic of the
Philippines.
- It was established on July 3, 1993 persuant to
the Provision of the 1987 Philippine Constitutions
and New Central Bank of 1993.

Primary Objective of the BSP

1. To maintain price stability conductive to
balance and sustainable growth of the Philippine
Economy.
2. Is charge with promoting and maintaining
monetary stability and covert ability of the
Philippine Peso.
Responsilities of BSP
-Tasted with promoting stability
- To reualate monetary transactions in every
Philippine financial Institution, printing paper
money, coinage and safeguard of the country’s
gold asset.
- Promoting law inflation and a health financial
system.

3 Main Pillars
1. Price Stability- entails keeping inflation how to
promote economic efficiency and improve the
well-being of Filipinos.
2. Financial Stability- ensures banks compliance
with fundamental rules and regulations. It ensures
that bank conduct business in a safe and sound
manner.
3. Efficient Payments and Settlement System-
enables people to make safe, timely and accurate
settlements of Financial transactions.
 Banking Market

BANKING MARKET

The primary goal of an investment bank

is to advise businesses and governments on how to
meet their financial challenges. Investment banks
help their clients with financing, research, trading
and sales, wealth management, asset
management, IPOs, mergers, securitized products,
hedging, and more.
 The banking or financial sector
comprises companies that provide consumers with
financial services. This includes retail banks,
insurance companies, and investment services
firms. The stronger it is, the stonger yhe economy
becomes. But as the sector weakens,the economy
begins to trail. So to have a healthy and stable
economy,it requires a strong financial and banking
sector.
Banking market are one to be
considered in making investment. Many of the
stocks in this sector pay dividends,which many
investors believe is a good sign of a company's
good quality. Banking market activities helps to
facilitate mergers and acquisitions,
reorganization,and broker trades for both
institutions and private investors. It also help
corporations to manage the financial aspects of
large projects.
Investment banks underwrite new debt
and equity securities for all types of
corporations,aid in the sale of securities and help
to facilitate for both institutions and private
investor. It also provide guidance to issuer's
regarding the issue and placement of stock.

COMMERCIAL AND UNIVERSAL BANKS

Universal banking is a system in which

the bank provides a wide variety of comprehensive
financial services,including those tailored to retail,
commercial,and investment services. The
difference of commercial bank from the universal
bank is that they are empowered to engage in the
activities of an investment house and to invest in
other industries other than those allied to the
banking industry.
LIST OF UNIVERSAL BANK
According to Bangko Sentral, there are 21
universal banks with active operations in the
Philippines as of March 2018. These banks are the
following:

Land Bank of the Philippines

Australia and New Zealand Banking Group Limited
Deutsche Bank AG
ING Bank N.V.
Mitzuho Bank, Ltd. – Manila Branch
Standard Chartered Bank
The Hongkong & Shanghai Banking Corporation
Asia United Bank Corporation
Rizal Commercial Banking Corporation
Security Bank Corporation
Union Bank of the Philippines
Al-Amanah Islamic Investment Bank of the
Philippines
Development Bank of the Philippines
Bank of the Philippine Islands
BDO Unibank, Inc.
United Coconut Planters Bank
China Banking Corporation
East West Banking Corporation
Metropolitan Bank and Trust Company
Philippine National Bank
Philippine Trust Company

Commercial banks typically offer

consumer and business services such as checking
and savings account, business and personal loans
including mortgages and auto loans,and certificate
of deposits.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.
LIST OF COMMERCIAL BANK
Asia United Bank Corp.
Bangkok Bank Public Co. Ltd.
Bank of America, N.A.
Bank of China Ltd. – Manila
Bank of Commerce
Bank of Tokyo-Mitsubishi UFJ, Ltd.
BDO Private Bank, Inc.
Chinatrust (Phils.) Commercial Bank Corp.
Citibank, N.A.
JP Morgan Chase Bank, N.A.
Korea Exchange Bank
Maybank Philippines, Inc.
Mega International Commercial Bank Co., Ltd.
Philippine Bank of Communications
Philippine Veterans Bank
Robinsons Bank Corp.

OTHER BANKS
 The remainder of the banking matket is
divided among thrift banks, rural banks,and a few
specialized government institutions. Universal and
commercial banks are the dominant groups,
representing approximately 70% of the resources
of the banking system
THRIFT BANKS
Is a type of financial institution that
specializes in offering savings accounts and
originating home mortgages for consumers. They
are also referred to as Savings and Loan
Associations .

TOP 10 THRIFT BANKS

1. Bank of the Philippine Islands Savings Bank
2. Philippine Savings Bank
3. Rizal Commercial Banking Corporation Savings
Bank
4. China Bank Savings
5. Philippine Business Bank
6. City Savings Bank
7. Philippine National Bank Savings Bank
8. Sterling Bank of Asia
9. Bank of Makati
10. United Coconut Planters Bank Savings Bank
RURAL BANKS
Is defined as rural financial institution,
cooperative, community bank or deposit taking
financial services to rural communities.

TOP 10 RURAL AND COOPERATIVE BANKS

1. One Network Bank
2. EastWest Rural Bank
3. CARD Bank, Inc.
4. Guagua Rural Bank
5. First Isabela Cooperative Bank (FICO Bank)
6. GM Bank of Luzon
7. Quezon Capital Rural Bank
8. Metro South Cooperative Bank
9. Bank of Florida (BOF Inc.)
10. AMA Rural Bank
SPECIALIZE
 Role of Foreign Banks

 There are 19 Foreign Bank Branches (FBBs) and subsidiaries composed of the four
FBBs originally granted access into the Philippines prior to the 1994 liberalization, the
10 FBBs under RA 7721 and the 5 foreign subsidiaries that entered under RA 7721.

 FBBs play an important role in servicing the country’s foreign currency needs

 Ensure a larger and more effective access to international capital.

 They also play an important role in introducing innovative financial products into the
Philippines.
 Prior to RA 10641, foreign banks were not allowed to establish a local branch with full
banking functions in the Philippines. Foreign banks may establish a branch to operate
as an offshore banking unit (OBU) - but they will not be able to offer traditional
banking services to Philippine customers.

 Total assets of FBBs and subsidiaries as of 2014 posted at P1,033.8 billion or 9.3% of
the banking system’s P11,158 billion (as of 2014). Operating funds of FBBs were
largely channeled to loans at 44.44% of total assets (down by 11.16% or P60.1 billion
to P459 billion).
 Specialized Financial Institutions

Specialized financial institutions means the financial institutions established by

specific law, namely Government Savings Bank, Bank for Agriculture and
Agricultural Co-operatives, Government Housing Bank, Small and Medium
Enterprise Bank of Thailand, Islamic Bank of Thailand, Export and Import Bank
of Thailand and Secondary Mortgage Corporation, excluding Small Business
Credit Guarantee Corporation

Finance companies are well established and the market for consumer finance
and loan syndication is relatively mature. Some notable loan syndications have
been concluded for build-operate-transfer contracts for infrastructure
development. The market for other specialized financing services such as leasing
and factoring, remains fairly immature. Only a handful of leasing companies
currently exist, with activities concentrated on a few lease items, such as
transportation, construction, and office equipment.

How do financial institution help businesses?

- in their desire to earn greater returns, financial institution help to funnel
money to the most successful businesses

Specialized finance Institution have a role in the well-being in the Philippines.

- A pivotal role in the quest for sustainable growth and development.
 Investment Institution

Institutional investors are organizations that pool together funds on behalf of

others and invest those funds in a variety of different financial instruments and
asset classes. They include investment funds like mutual funds and ETFs,
insurance funds, and pension plans as well as investment banks and hedge
funds.
These can be contrasted with individuals who are most often classified as retail
investors.

 Institutional investors are large market actors such as banks, mutual

funds, pensions, and insurance companies.
 In contrast to individual (retail) investors, institutional investors have
greater influence and impact on the market and the companies they
invest in.
 Institutional investors also have the advantage of professional research,
traders, and portfolio managers guiding their decisions.
 Different types of institutional investors will have different trading
strategies and invest in different types of assets.
 Greater Influence
 Institutional investors control a significant amount of all financial
assets in the United States and exert considerable influence in all
markets. This influence has grown over time and can be confirmed by
examining the concentration of ownership by institutional investors in
the equity of publicly traded corporations. Institutional investors own
about 80% of equity market capitalization. 12  As the size and importance
 of institutions continue to grow, so do their relative holdings and
influence on the financial markets.

 Advantages

Institutional investors are generally considered to be more proficient at

investing due to the assumed professional nature of operations and greater
access to companies because of size. These advantages may have eroded over
the years as information has become more transparent and accessible, and
regulation has limited disclosure by public companies.4

Asset Allocation

Institutional investors include public and private pension funds, insurance

companies, savings institutions, closed- and open-end investment companies ,
endowments, and foundations.

Institutional investors invest these assets in a variety of classes. The standard

allocation according to McKinsey's 2017 report on the industry is approximately
40% of assets to equity and 40% to fixed income. Another 20% of total assets
were allocated to alternative investments like real estate, private equity, hedge
funds, cash, and other areas. However, these figures drastically vary from
institution to institution. Equities have experienced the fastest growth over the
last generation, as in 1980, only 18% of all institutional assets were invested in
equities.5
 PFinancial Market

Financial Markets -
 any place or system that provides buyers and sellers the means to trade
financial instruments, including bonds, equities, the various international
currencies and derivatives.
 facilitate the interaction between those who need capital with those who
have capital to invest.

Example of financial market include the stock market, the bond market and
the commodities
market.
Securities Markets-
allow stocks, bonds, and other securities to be bought and sold quickly and
at a fair price.
Trading is normally effected through securities dealers and brokers. Listed
companies come from a variety of sectors including banking and financial
services, commercial and industrial, property, mining, and oil exploration.
A feature of many listed companies is strong family ownership, and in some cases
family control. The government recognizes, however, that wide public ownership
of the nation’s industry is good for the economy, and some laws exist encouraging
private corporations to distribute their stocks more widely.There are no
restrictions on the ability of foreign investors to acquire shares in listed
companies.The Philippines also has unlisted stocks that are traded over-the-
counter.There is the Alternative Trading System (ATS) that is regulated by the
Securities and Exchange Commission (SEC) rules.
Alternative Trading System (ATS) -
refers to any organization association, person or group of persons,or
system that constitutes, operates maintains or provide an electronic market place
or facility that brings together primary market issuers of securities and secondary
market sellers and buyers of securities.
Specialized financial markets
The financial future markets in the Philippines has been discontinued,
though the BSP has declared it's policy to support the development of the
Philippines financial market by providing banks and their clients with expanded
opportunities for financial risk management and investment diversification
through the prudent used of derivatives. By following BSP's most recently issued
guidelines, a bank may engage in financial derivatives activity whether as an end-
user, broker, or dealer of derivatives instruments.

Bank for International Settlements (BIS)

In the Triennial Bank Survey of December 2007 conducted by the Bank for
International Settlements or BIS, the Philippines was featured as one of the active
players, though contributing only 0.1% to the overall geographical distribution of
reported over-the-counter derivatives market activity in foreign exchange. In the
April 2010 survey, the Philippines maintained its contribution of 0.1% to the
overall geographical distribution.
The BIS's mission is to support central banks' pursuit of monetary and financial
stability through international cooperation, and to act as a bank for central banks .
 Security Markets

( Definitions and Concepts )

Topic Outline:
1. What is the Meaning of Securities?
2. What is a Market?
3. Types of Markets
4. Characteristics of a Good Securities

SECURITIES – are proofs of one’s ownership or indebtedness in a

company or an entity.

MARKET
- A market is a mechanism that brings together buyers and sellers
to aid in the transfer of goods and services.
- A market does not necessarily need a physical location.
- What is important is that the buyers and sellers can
communicate the relevant details of the transaction.

TYPES OF MARKETS
Markets are usually designated by the types of goods or services that
it trades. Hence, a foreign exchange market is where currencies are
sold and bought, while a securities market is where all forms of
securities are traded.

Securities Markets can further be classified into the following:

1. Money market
2. Capital market
3. Stocks market
4. Bond market
5. Derivatives market

CHARACTERISTICS OF A GOOD SECURITIES

1. Transparent
2. Liquid
3. Internally efficient
4. Externally efficient