BFBANFIX

BANKING AND FINANCIAL INSTITUTIONS

_____________________________________________________________________________________

COURSE MATERIAL

Week No. 3-5

Topic Title BANKING INSTITUTIONS AND SERVICES OFFERED
Topic 1. To understand, analyze and explain the government banking institutions
Learning and their functions to the economy
Outcomes 2. To be able to describe, understand and explain the products and services
being offered by a commercial banks and thrift banks
3. To be able to describe, understand and explain the products and services
being offered by a Rural Bank and operations of PDIC

Prepared by:

Dr. Jay-Ar C. Dimaculangan, CHRP, AEPP, AWP

Ms. Redem Quinagoran, MBA

Page 1 of 27
Vocabulary List/Key Terms:

Commercial Banks Land Bank of the Philippines Banks

Rural Banks Development Bank of the Rehabilitation Finance
Philippines Corporation
Thrift Banks Philippine Deposit Insurance Investment House
Corporation
Universal Banks General Banking Law of 2000 Savings Deposit
Non-Bank Financial Institutions Al Amanah Islamic Bank Time Deposit
Current Deposit Retail Banking Investment Banking

Pretest / Teaser:

Did you know? Financial institutions are the primary source of long-term lending for large projects.
And the largest source comes from BANKS?
What financial services do you know banks offer?
Can you share an experience that you have availed or anyone you know the services of a bank?

Discussion / Lesson Proper:

BANKING INSTITUTIONS AND SERVICES OFFERED

REPUBLIC ACT NO. 8791 –- AN ACT PROVIDING FOR THE REGULATION OF THE
ORGANIZATION AND OPERATIONS OF BANKS, QUASI-BANKS, TRUST ENTITIES AND FOR
OTHER PURPOSES

The short title of the act is “General Banking Law of 2000”

Declaration of Policy: The State recognizes the vital role of banks providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of
banking that requires high standards of integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a developing economy.

Page 2 of 27
Definition and Classification of Banks

• "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits

Banks shall be classified into:

a. Universal banks;
b. Commercial banks;
c. Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings and loan
associations, and (iii) Private development banks, as defined in the Republic Act No. 7906
(hereafter the “Thrift Banks Act”);
d. Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks Act");
e. Cooperative banks, as defined in Republic Act No 6938 (hereafter the "Cooperative Code");
f. Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al
Amanah Islamic Investment Bank of the Philippines"; and
g. Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng
Pilipinas.

GOVERNMENT BANKING INSTITUTIONS

1. Land Bank of the Philippines

The Land Bank of the Philippines (LandBank) is a financial
institution owned by the Government of the Philippines. It aims to
strike a balance in fulfilling its social mandate of promoting
countryside development while remaining financially viable. Over
time, the LandBank has expanded its loan portfolio in favor of its
priority sectors, which include fisheries, health care, environment,
and tourism, among others.

VISION

By 2023, LANDBANK shall be the leading universal bank that

promotes inclusive growth, especially in the unbanked and underserved areas, through the delivery of
innovative financial products and services powered by digital banking platforms.

MISSION

To our Clients and Publics: We provide accessible and best technology solutions to deliver timely and
responsive financial and support services to meet the needs of our clients, especially Small Farmers and
Fishers (SFFs), Micro, Small and Medium Enterprises (MSMEs), Countryside Financial Institutions (CFIs),

Page 3 of 27
Local Government Units (LGUs) and government agencies, while promoting sustainable development
anchored on good governance.

To our Employees: We are the employer of choice. We develop and nurture talents who exemplify the
highest standards of ethics, social responsibility and service excellence. We support diversity and cultivate
a healthy work environment with equal opportunity for professional growth and advancement.

Guiding Principles of LANDBANK

• Catalyst of countryside development and poverty alleviation.

• Commitment towards the development of the cooperative system.
• Self-sustainability through cross-subsidy operations (commercial banking profits
supporting agrarian operations).
• Self-reliant government institution with no budgetary support.
• Commitment towards environmental protection.

Major Roles of LANDBANK

• An implementing agency of CARP involved in land evaluation, compensation to owners

of private agricultural lands, and collection of amortizations from CARP farmer-beneficiaries.
• Provision of credit assistance to small farmers and fisherfolk and ARBs.
• An official depository of government funds.
• A government bank with a social mandate to spur countryside development.
Core Values
o Innovation
o Accountability
o Customer Focus
o Collaboration
o Excellence
o Social Responsibility
o Resiliency

History of LAND BANK

❖ 8 August 1963
Republic Act 3844 (Agricultural Land Reform Code)

o Created the Land Bank of the Philippines (LBP) to finance the acquisition and distribution
of agricultural estates for division and resale to small landholders as well as the purchase
of the landholding by the agricultural lessee.

Page 4 of 27
 o Tax exempt on all operations, holdings, equipment, property, income and earnings.
o Agricultural Credit Administration (ACA) responsible for extending credit assistance to
farmers cooperatives and directly to small farmers.

❖ 21 October 1972
Presidential Decree 27 (Tenant Emancipation Act)
o Emancipation of tenant-farmers of private agricultural lands devoted to rice and corn under
a system of share-crop or lease-tenancy, whether classified as landed estate or not.
o Value of land transferred to tenant-farmers at 2 1/2 times the average. Harvest of 3 normal
crop years immediately preceding the promulgation of PD 27; LBP to collect 15-year land
amortizations from beneficiaries for the cost of the land plus 6% interest per annum

❖ 21 July 1973
Presidential Decree 251 (Revitalizing LANDBANK)
o Granted universal or expanded commercial banking powers to LBP and established LBP
as the universal bank with a social mission of spurring countryside development; to cross-
subsidize agrarian land transfer and loans to small farmers and fisherfolk.
o Empowered LBP to grant loans to farmers cooperatives/associations to facilitate
production, marketing of crops and acquisition of essential commodities.
o Increased authorized capitalization to 3 billion pesos;
o Increased the number of members of the Board of Directors to seven (7):
o Exempted from all national, provincial, municipal & city taxes and assessments

❖ 1977
Reorganization
o LBP formed three major sectors - Agrarian, Banking and Operations to strengthen
operations and ensure long-term viability.

❖ 8 July 1982
Executive Order 816 (Transfer of ACA to LBP)
o To adopt an integrated approach in the provision of financial assistance to AR farmer-
beneficiaries a single institution is preferred;
o ACA was abolished and its functions (loans to small farmers) were transferred to LBP.

❖ 22 July 1987
Executive Order 229 (CARL)
o Created the Presidential Agrarian Reform Council (PARC) as the highest policymaking
and coordinating body of the Comprehensive Agrarian Reform Program (CARP) to
ensure timely and effective delivery of the necessary support services.
o Established the Agrarian Reform Fund (ARF) with an interim amount of 50 Php billion
to cover the financing requirements of CARP with appropriations coming from the

Page 5 of 27
 proceeds of the Asset Privatization Trust and the Presidential Commission on Good
Government.
o LBP to provide assistance to landowners through investment information and counselling
assistance. Conversion and/or exchange of LBP Agrarian Reform bonds to/from
government stocks with government assets. marketing of LBP Agrarian Reform bonds.

❖ 10 June 1988
Republic Act 6657 (CARL)
o Broadened the coverage of agrarian reform to include all public and private agricultural
lands including other lands of the public domain suitable for agriculture.
o Established LBP as the financial intermediary of the CARP.

❖ 14 June 1990
Executive Order 405 (CARP Land Valuation)
o Transferred the primary responsibility of determining land valuation and compensation for
all lands covered under CARP from the DAR to the LBP.
o LBP created regional Land Valuation and Landowners Compensation Offices (LVOs)
to carry out land valuation and compensation.

❖ 23 February 1995
Republic Act 7907 (Amended LBP Charter)
o Increased authorized capitalization to 9 billion pesos;
o Established LBP as an official government depository.
o Increased the number of members of the Board of Directors to nine (9)

❖ 25 July 1995
Executive Order 267 (CARL)
o National Government to issue Agrarian Reform (AR) bonds to be used by LBP for land
transfer payments.
o Segregation of the accounts of CARP-related transactions from the books of LBP.
o CARP accounts and AR bonds were previously part of LBP's books and adversely affected
LBP's financial position (leverage and capital adequacy ratios).

❖ 25 August 1998
Increase of Authorized Capital
o Authorized capitalization increased to 25 billion Php by the Department of Finance and the
President of the Philippines.

❖ 5 March 2013
Extension of LANDBANK’s Corporate Life
o Republic Act 10374, LANDBANK’s corporate life was extended for a period of 50 years
from the expiration of its or its original term of Aug. 8, 2013, renewable for another 50
years.

Page 6 of 27
❖ 04 February 2016
Executive Order 198 (Increase in the Authorized Capital of LBP)
o LBP to increase its authorized capital stock from Php 25 billion to Php 200 billion
o Provision of capital infusion of at least Php 30 billion to allow LBP to continue supporting
the government’s sustainable and inclusive growth agenda.

❖ 27 July 2016
Republic Act 10878 (Institutionalizing Direct Credit Support of LBP to Agrarian Reform
Beneficiaries, Small Farmers and Fisherfolk)
o LBP to allocate at least 5% of its regular loan portfolio for socialized credit to qualified
small farmers, fisherfolk and agrarian reform beneficiaries (ARBs).

❖ 11 September 2020
Republic Act 11494 (Providing for COVID-19 Response and Recovery Interventions and
Providing Mechanisms to Accelerate the Recovery and Bolster the Resiliency of the
Philippine Economy, Providing Funds therefore, and for Other Purposes)
o LBP appropriated Php 1 billion to subsidize the payment of interest on new and existing
loans secured by LGUs from government financial institutions (GFIs)
o Php 27.5 billion to support wholesale banking and equity infusion of the LBP for low
interest loans to be extended to persons and entities engaged in industries affected by the
COVID-19 pandemic

Page 7 of 27
Composition of the Board of Directors

The affairs and business of the Bank shall be directed and its property managed and preserved by a Board
of Directors consisting of nine (9) members (per RA 3844, as amended by RA 7907 of 1995) as follows:
• Secretary of Finance - Chairman (Ex Officio)
• LANDBANK President and CEO - Vice-Chairman
• Secretary of Agrarian Reform - Ex Officio Member
• Secretary of Labor and Employment - Ex Officio Member
• Secretary of Agriculture - Ex Officio Member
• Two members appointed by the President of the Philippines representing
Agrarian Reform Beneficiaries
• Two members appointed by the President of the Philippines representing
the Private Sector

Other Development/s

The United Coconut Planters Bank, more popularly known by its initials, UCPB, or by its old name,
Coco bank, was a government-controlled and was one of the largest banks in the Philippines, ranking within
the top twenty banks in the country in terms of assets. It is the only existing universal bank not listed on the
Philippine Stock Exchange. The bank, owing to its name, catered heavily to coconut farmers, but also
served a wide-ranging clientele. In July 2020, the Philippine government raised its stake with the bank to
97%, thus resulting for its conversion to a government-controlled bank.[1][4]

Effective March 1, 2022, UCPB merged with Land Bank of the Philippines, with Land Bank as the
surviving entity.

2. Development Bank of the Philippines

The Development Bank of the Philippines is a

development banking institution dedicated to nation-
building by assisting critical industries and sectors,
promoting entrepreneurship particularly in the
countryside, helping build more productive
communities, advancing environmental protection, and
contributing to the improvement of lives of Filipino
across the nation.

Since its beginnings as the Rehabilitation Finance

Corporation tasked to fund post-war rehabilitation,
DBP has remained steadfast in its commitment to

Page 8 of 27
 support the government’s various development initiatives.

With more than seven decades of committed advocacy as the country’s premier development
financing institution, DBP has sharpened its development focus as the Philippines’ Infrastructure
Bank. With this enhanced mandate, DBP more aggressively supports infrastructure development
and inclusive growth.

DBP supports projects directed at laying the infrastructure for growth in priority sectors, namely:
transportation and logistics, environment, social services and community development, and small
and medium enterprises. Accelerated lending is also channeled to the public sector, principally
Local Government Units, Water Districts and Electric Cooperatives.

MISSION

To support infrastructure development, responsible

entrepreneurship, efficient social services and
protection of the environment; -To work for raising
the level of competitiveness of the economy for
sustainable growth; -To promote and maintain the
highest standards of good governance.

VISION

Vision 2040: By 2040, DBP will be a world-class infrastructure and development financial institution and
proven catalyst for a progressive and prosperous Philippines.

Vision 2022: By 2022, a one-trillion Bank capable of supporting and spearheading development in half of
the Philippine countryside.

CORE VALUES
• INTEGRITY (Honesty, Truthfulness, Transparency)
• EXCELLENCE (Competence, Dedication to Work, Professionalism)
• TEAMWORK (Harmony, Cooperation, Synergy)
• SERVICE TO OTHERS (Customer – Oriented)
• LOVE FOR THE FILIPINO (Love of country and its people everywhere)

Page 9 of 27
HISTORY

DBP’s history can be traced back during the Commonwealth when the early infrastructure for development
financing was laid by the National Government.

o 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.

o 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.

o 1946 – 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.

o 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.

o 1963 – Congress broadened DBP’s powers by increasing its capitalization to P2-billion and borrowing
capacity to 10 times its paid-in capital and surplus. The lion’s share of funding goes to industries in
need of support.

o 1966 – DBP marked its debut as an investment bank, aiming to establish a broad and prosperous
securities market.

o 1967 – DBP raised its agricultural lending by 80 percent to ensure food security, prioritizing rice and
corn production. It likewise constructed a 120-hectare Greater Manila Food Market in Fort Bonifacio.

o 1969 – Construction of the DBP Head Office Building began, and was completed in 1971. DBP-
funded projects continued to drive growth in several industries, accounting for 94 percent of the
nation’s textile outputs, 90 percent of cement, 88 percent of steel, and 80 percent of all its pulp-mill
capacity.

Page 10 of 27
o 1970 – The devaluation of the peso caught DBP at a vulnerable time given its issuance of guarantees
for dollar-denominated debts incurred by clients. With debts coming due, the Bank cut down domestic
lending operations and suspended almost all new guarantees. Nevertheless, DBP projects still created
10,465 new jobs.

o 1971 – In response to the economic slowdown, DBP shifted its focus to countryside development.
Agricultural lending was directed toward food production, and industrial lending shifted focus to
industries that generated more employment and utilized raw materials and agricultural products.

o 1973 – DBP’s capitalization was increased from P2-billion to P3-billion through Presidential Decree
195. The Bank joined five other agencies in organizing the Development Academy of the Philippines.
Agriculture remained a top priority for DBP.

o 1977 – DBP celebrated its 30th anniversary and was recognized as Southeast Asia’s largest
development bank, with P16.7-billion in assets. In 30 years, the Bank had lent out P11.9-billion to
419,533 borrowers. In partnership with the National Housing Authority, DBP also established a
lending program for small businesses and homeowners.

o 1978 – DBP launched its “Study Now, Pay Later” program, benefitting students pursuing agriculture,
engineering, economics, and other courses crucial to national development.

o 1979 – DBP spent P1.304-billion for the refinancing of large industrial accounts temporarily distressed
by the Second Oil Shock. These industries included shipping, mining, cement, hotels, and
telecommunications.

o 1980 – Amid the oil crises, DBP provided support to energy and transport services by supporting the
search and development of alternative energy sources and the air-conditioned “Love Buses” in Metro
Manila.

o 1981 – DBP served as one of the primary conduits of funds in the National Government’s efforts to
bail out many troubled corporations. Lending activities are suspended.

o 1984 – Affected by worldwide economic difficulties, a large number of DBP-financed projects failed
to make payments and the acceptance of new loans remained suspended. DBP suffered a loss of P1.2-
billion, a first in its 38-year history.

o 1986 – Former President Corazon C. Aquino issued Executive Order No. 81 which provided for the
1986 Revised Charter that called for a clean-up of DBP’s books, staff reorganization, and infusion of

Page 11 of 27
 initial operating budget. The rehabilitation program restored the Bank’s financial viability and DBP
resumed lending operations. With the transfer of non-performing assets together with liabilities on
June 30, 1986 to the National Government, DBP implemented an institutional strengthening program
covering a revision of the credit process and a training program for the implementation of new lending
thrusts. The Bank reopened its lending windows for housing, agriculture, and small and medium scale
industries.

o 1988 – DBP resumed full development banking operations. The Bank was accredited as a participating
financial institution under the Industrial Guarantee and Loan Fund.

o 1992 – DBP was recognized as one of the World’s Top Ten Banks by The Banker. The Bank continued
to prioritize implementation of high-impact projects all over the country.

o 1994 – DBP ranked 11th in terms of overall leadership among top Philippine companies in the survey
undertaken by the Far Eastern Economic Review in association with Citibank.

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

o 1997 – DBP floated a 20 billion Asian Yen Bond (US$169-million), the first of its kind in the region.
The Bank marked its 50th year by turning over a One Billion Peso dividend check, representing 50%
of its net income, and one of the biggest contributions to the National Government among government-
owned-and-controlled corporations.

o 1998 – Former President Fidel V. Ramos signed Republic Act 8523 amending DBP’s 1986 Charter.
Among the major provisions incorporated in the new DBP Charter were the increase of authorized
capital stock from P5-billion to P35-billion, and the creation of the position of President and Chief
Executive Officer

o 1999 – DBP launched the LGU-Urban Water and Sanitation Project and allotted P6-billion to the
housing sector to help alleviate poverty.

o 2001 – The Bank became the first Philippine bank to be ISO 14001-certified for its successful
establishment and implementation of an Environmental Management System.

o 2003 – The Asian Banker ranked DBP as the Strongest Bank in the Philippines for its financial and
operational parameters, asset quality, and improvements in profits and assets from previous years. The
Bank was also named 6th Best Employer in the country in a study conducted by Hewitt Associates,
the Management Association of the Philippines, and BusinessWorld.

Page 12 of 27
 o 2005 – The Bank’s loan portfolio reached an all-time high of P79.3-billion. Out of the country’s top
10 banks, DBP ranked 7th in terms of assets and 4th in terms of net income performance.

o 2007 – DBP was conferred an Outstanding Corporate Governance award by the Association of
Development Financing Institutions in Asia and the Pacific.

o 2008 – DBP stepped up its Overseas Filipino Workers Assistance Program, conducting a series of road
shows in Hong Kong to educate migrant workers.

o 2010 – DBP’s Quality Management System received ISO 9001:2008 certification for remittance
operations, cash management, and retail lending. The DBP Institute was also inaugurated in Baguio
City.

o 2012 – DBP successfully raised US$300-million in global dollar notes as its contribution to the P200-
billion Private-Public Partnership Projects of the Philippines. The Bank’s water sustainability initiative
in Boracay bagged an award from the Association of Development Financing Institutions in Asia and
the Pacific.

o 2015 – Largely fueled by loans, DBP’s total assets crossed the half-trillion mark at P504-billion.
Branch banking operations were intensified especially in the countryside.

o 2017 – DBP was named “SME Bank of the Year’’ in The Asian Banker–Philippine Country Awards.

o 2020 – DBP joined the ranks of trillion-peso banks in the country, with total assets reaching P1.04-
trillion.

o 2021 – DBP was conferred by the Department of Trade and Industry with a Philippine Quality Award
(PQA) Level 2 Award for its proficient practice of quality management.

Governance of DBP

In the Philippines, development financing institutions play a pivotal role in the quest for sustainable
growth and development. And at the helm of the country’s march toward progress is the Development Bank
of the Philippines. As the country’s pre-eminent development financial institution, DBP has taken upon
itself the strategic task of influencing and accelerating sustainable economic growth, through the provision
of resources, for the continued well-being of the Filipino people.

The DBP, under its new charter, is classified as a development bank and may perform all other
functions of a thrift bank. Its primary objective is to provide banking services principally to cater to the

Page 13 of 27
medium and long-term needs of agricultural and industrial enterprises with emphasis on small and medium-
scale industries.

The affairs and business of the Bank are directed, and its properties managed and preserved, and
its corporate powers exercised by a Board of Directors consisting of nine (9) members appointed by the
President of the Republic of the Philippines. The Chief Executive Officer of the Bank is also the President
who is elected by the Board of Directors. The President is also the Vice Chairman of the Board.

3. Al-Amanah Islamic Investment Bank of the Philippines

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”.

As an Islamic investment Bank, the Bank

may also engaged in issuance or assist the government in Islamic investment participation by
issuance of investment participation certificates, muquaradah or sukuk (Islamic bonds), debentures,
collaterals and/or the renewal or refinancing of the same, with the approval of the Monetary Board
of the Central Bank of the Philippines, to be used in its financing operations for projects that will
promote the economic development primarily of the Autonomous Region.

As a Universal Bank, the Bank also offers developmental and car loans to private and
public sector and other Islamic investment assistance.

Today, AAIIBP has nine (9) operating banks in the Cities of Cagayan de Oro, Cotabato,
Davao, Iligan, General Santos, Marawi, Makati and Zamboanga and one in Jolo, Sulu.

VISION
To be the leading and choice Islamic financial institution providing alternative banking services in response
to the emerging global Islamic markets and to promote and accelerate the socio-economic developments of
the Islamic communities in the Philippines by 2022.

Page 14 of 27
MISSION OF THE BANK

To become a full Islamic Bank and afford Filipinos of the blessings and benefits of Islamic banking,
financing and investment.

• To be competitive and significant in the banking industry.

• To become a key-player in the global Islamic banking and investment market.
• Participate in all phases of development especially in the ARMM and Mindanao.
• To serve as arm of the Government in addressing poverty alleviation especially in Muslim
Filipino communities across the country by delivering them the goodwill and simplistic Islamic
banking and financing that are responsive, sensitive and suitable to their way of life.
• To equip Muslim Filipinos with Islamic banking and financial education that can help them
improve their economic condition and make them a significant economic force of the nation.

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 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

Page 15 of 27
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.

Core Values
• Adherence to Shari’ah Principles,
• Integrity, Competence and Excellence

UNIVERSAL BANKS
Universal banks are financial service conglomerates that combine investment banking,
commercial banking, development banking, and insurance to encompass a wider variety of services.
They are also authorized to engage in other functions such as merchant banking, mutual funds, factoring,
housing finance, and practically all types of functions typical in the banking business.

Page 16 of 27
Powers of a Universal Bank - A universal bank shall have the authority to exercise, in addition to the
powers authorized for a commercial bank in Section 29, the powers of an investment house as provided
in existing laws and the power to invest in non-allied enterprises as provided in R.A 8791.

Investment House is any enterprise which primarily engages, whether regularly or on an isolated
basis, in the underwriting of securities of another person or enterprise, including securities of the
Government or its instrumentalities.

COMMERCIAL BANKS

Commercial banking focuses on products and services that are specifically designed for businesses, such
as deposit accounts, lines of credit, merchant services, payment processing, commercial loans, global trade
services, treasury services, and other
business-oriented offerings. Commercial
banks can help small businesses through a
corporate-banking arm as well as large
enterprises through an investment-banking
arm. They might also work with individual
consumers, serving additionally as retail
banks.

Page 17 of 27
 Since these banks are typically stock corporations, their aim is to make a profit for their
shareholders. The way they typically do this is through what is known as "financial intermediation,"
whereby savers who are willing to hold their deposits with the bank are matched with borrowers who need
loans.

To facilitate the movement of money between savers and borrowers, commercial banks receive
customer deposits, place them in different types of accounts, extend loans with interest on those deposits to
businesses and individuals, and pay interest to borrowers on the deposits.

Commercial banks are privately-owned institutions that accept deposits and lend money to projects
to earn interest. They also offer personal, business, and mortgage loans, checking account services, and
basic financial products like savings accounts and certificate of deposit to individuals and businesses. They
are primarily owned by shareholders and are profit-based.

Objectives of Commercial Banks

The objectives of commercial banks are two-fold; to offer a wide variety of services to individual
and business customers, and to collect payments including fees, charges and interest on the products and
services provided to customers for the purpose of generating profits for shareholders. Commercial banks

Page 18 of 27
typically offer a robust suite of services in an attempt to be able to serve all the financial needs of each
customer. This results in the opportunity to maximize revenues from each customer. For example, a
customer who has checking and saving accounts, loans, and credit cards for personal and business use at
one bank generates revenues through numerous channels. Revenues can be increased further if the customer
also buys stocks and bonds through a bank’s brokerage arm.

The Importance of Commercial Banks

Commercial Banks play a critical role in the country’s financial system by providing liquidity
through the creation of loans, access to money on deposit and the availability of revolving liquidity through
the creation of loans, access to money on deposit and the availability of revolving debt using credit cards.
Access to money enables business to grow, consumers to make purchases of goods and services and jobs
to be created. This liquidity, combined with the expedited, simple and efficient transfer of money for a wide
range of financial transactions, is an essential factor in a healthy economy.

Advantages of Commercial Banks

Commercial banks provide convenience to customers by offering a wide range of services from a
single provider. For example, a customer who has consolidated all financial accounts with one commercial
bank could deposit a paycheck, withdraw cash, and pay the mortgage in a single location. Depending on
the number of services being used, this also can allow for the organization of financial accounts to a single
monthly statement. The range of services also promotes a high level of customization for each customer’s
financial needs.

How Commercial Banking Works?

The functions of commercial banks are classified into two main divisions.
(a) Primary functions

• Accepts deposit: The bank takes deposits in the form of saving, current, and fixed deposits/time
deposits. The surplus balances collected from the firm and individuals are lent to the temporary
requirements of the commercial transactions.
• Provides loan and advances: Another critical function of this bank is to offer loans and
advances to the entrepreneurs and business people, and collect interest. For every bank, it is the
primary source of making profits. In this process, a bank retains a small number of deposits as a
reserve and offers (lends) the remaining amount to the borrowers in demand loans, overdraft, cash
credit, short-run loans, and more such banks.
• Credit cash: When a customer is provided with credit or loan, they are not provided with liquid
cash. First, a bank account is opened for the customer and then the money is transferred to the
account. This process allows the bank to create money.

Page 19 of 27
(b) Secondary functions

• Discounting bills of exchange: It is a written agreement acknowledging the amount of money to

be paid against the goods purchased at a given point of time in the future. The amount can also be
cleared before the quoted time through a discounting method of a commercial bank.
• Overdraft facility: It is an advance given to a customer by keeping the current account to
overdraw up to the given limit.
• Purchasing and selling of the securities: The bank offers you with the facility of selling and
buying the securities.
• Locker facilities: A bank provides locker facilities to the customers to keep their valuables or
documents safely. The banks charge a minimum of an annual fee for this service.
• Paying and gathering the credit: It uses different instruments like a promissory note, cheques,
and bill of exchange.

Powers of a Commercial Bank. — A commercial bank shall have, in addition to the general powers
incident to corporations, all such powers as may be necessary to carry on the business of 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 deposits and deposit substitutes; buying and selling foreign exchange and gold or silver
bullion; acquiring marketable bonds and other debt securities; and extending credit, subject to such rules as
the Monetary Board may promulgate. These rules may include the determination of bonds and other debt
securities eligible for investment, the maturities and aggregate amount of such investment.

THRIFT BANKS

These banks focus on accumulating and investing depositors’ savings, while also providing short-
term working capital, and medium- and long-term financing.

The main clients of thrift banks are businesses engaged in agriculture, services, industry and
housing, and diversified financial and allied services, in addition to other markets and constituencies,
especially individuals and small- and medium-size enterprises.

A thrift bank, also known as a savings and loan association, is a form of financial institution that
provides essential banking services. In addition, it offers a variety of savings options and mortgage loan
services. Like commercial banks, these also qualify as depository institutions and may even provide a range
of other products and services.

These banks offer their customers a higher level of liquidity regarding mortgage loans and provide
a higher yield for savings accounts. Thrifts initially offered facilities like time deposits and savings
accounts. Still, with the expansion of banking services and the change in customers’ expectations and
requirements, these banks also started offering similar products compared to commercial banks and credit
unions.

Page 20 of 27
Functions

1. These banks are financial institutions that relieve the monopoly stress and offer their account
holders facilities like savings accounts, mortgage loans, etc. The purpose is to accept deposits and
provide mortgage loans to their customers.
2. The interest on the savings deposited by the customers in the bank is high. In contrast, the
customers’ curiosity about the mortgage loan is relatively lower than commercial banks and
credit unions.
3. They formed these thrift banks to offer their customers mortgage loan facilities, enabling 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.
4. These banks also offer mortgages at lower costs and savings accounts that pay a higher rate of
interest in comparison to national and international banking institutions. These banks operate in
the best interest of the local people. For this reason, they offer savings accounts and mortgage
loans that could benefit the locals.

Page 21 of 27
TYPES OF THRIFT BANKS

1. Savings Bank- These banks generate funds from selling savings to customers and investing
in mortgage loans.
2. Private Development Bank- These banks are formed to support government policies.
3. Stock Savings and Loan Associations- A locally or privately managed financial banking
institution that takes long-term deposits to provide amortized home loans.

THRIFT BANKS VS. COMMERCIAL BANKS

THRIFT BANKS COMMERCIAL BANKS

Commercial banks are profit-oriented. They

Thrift banks, unlike commercial banks, are not operate mainly to earn profits, and these banks
profit-oriented. Rather, these are local don’t need to maintain asset class
people-oriented.
They are owned mutually either by The shareholders mostly own commercial
depositories or stockholders banking institutions.
It emphasizes more assets that are related to Commercial banks, these offer loans at a lower
housing. interest rate and higher savings return to their
customers.

As of December 31, 2021, the BSP lists the following top thrift banks in terms of assets: BPI
Family Savings Bank Inc. (P330.79 billion); Philippine Savings Bank (P260.825 billion); Philippine
Business Bank Inc. (P155 billion); City Savings Bank Inc. (P117.815 billion); and, China Bank Savings
Inc. (97.192 billion).

Republic Act 7906 defines thrift banks as including the following: savings and mortgage banks; private
development banks; stock savings and loans associations organized under existing laws; and, any banking
corporation organized according to purposes defined by law.

Organization. — A thrift bank shall be organized in the form of stock corporation. The Monetary
Board shall fix the minimum paid-up capital of thrift banks in such amount as the Board may consider
necessary for the safe and sound operation of thrift banks taking into account the development thrusts of

Page 22 of 27
this Act and due protection of the general public. No thrift bank shall be organized without a certificate of
authority from the Monetary Board.

RURAL BANKS
A rural bank can be defined as rural financial institution/ cooperative/ community bank or deposit
taking financial institution that provides customized financial services to rural communities. Rural Banks
Act (Republic Act No. 7353) this Act governs the establishment of a rural banking system designed to
provide credit facilities to farmers, fishermen, merchants, their cooperatives, small business enterprises and
to rural communities in general (sects. 3, 6 and 7).

Organization and Capitalization

Rural banks shall operate under the authority of a Certificate from the Monetary Board of the Central
Bank, and are to be organized in the form of stock corporations. The capital stock of rural banks is to be
fully owned by citizens of the Philippines or corporations, associations or cooperatives qualified under
Philippine law to own such capital stock (sect. 4).

Loans may be granted by rural banks against security of lands held under a variety of titles, which can
be foreclosed (sect. 6). Government banking institutions are mandated by the Act to subscribe to the capital
stock of rural banks in an amount equal to the total equity investment of the private shareholders, with a
view to supplementing the capital available to rural banks until these have accumulated enough capital of
their own. Special provisions govern the stock so held by Government banking institutions (sect. 8). These
are also allowed to lend to rural banks at concessional interest rates, repayable in ten years, against security
of stock or other, offered by the stockholders of the rural bank (sect. 14). The Monetary Board shall
supervise the business of rural banks, and may take over the management of any such bank whose
operations are found to be in breach of the law (sect. 11). Fines and terms of imprisonment, in relation to a
series of offences, are included, in particular, corruption of rural bank employees (sect. 25).

PRODUCTS & SERVICES

• Accept saving and time deposit;

• Open current or checking accounts, provided the rural bank has net assets of at least Five million
(P5,000,000) subject to such guidelines as may be established by the Monetary Board:
• Act as correspondent for other financial institutions;
• Act as a collection agent;
• Act as official depositary of municipal, city or provincial funds in the municipality, city or province
where it is located, subject to such guidelines as may be established by the Monetary Board;
• Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines, the
Development Bank of the Philippines, or any other banking institution, including its branches and
agencies. Said institution shall specify the nature of paper deemed acceptable for rediscount, as
well as the rediscount rate to be charged by any of these institutions;
• Offer other banking service as provided in Section 72 of Republic Act No. 337, as amended, and

Page 23 of 27
 • Extend financial assistance to public and private employees in accordance with the provisions of
Section 5 of Republic Act No. 3779, as amended.
• With written permission of the Monetary Board of the Central bank, any rural bank may act as
trustee over estates or properties of farmer and merchants.

Minimum Capital Requirements of Banks in the Philippines

Page 24 of 27
Philippine Deposit Insurance Corporation (PDIC)

The Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality created on 22 June
1963 by Republic Act 3591 entitled, An Act Establishing the Philippine Deposit Insurance Corporation
(PDIC), Defining Its Powers and Duties and for Other Purposes.

PDIC exists to protect depositors by providing deposit insurance coverage for the depositing public and
help promote financial stability. PDIC is tasked to strengthen the mandatory deposit insurance coverage
system to generate, preserve, maintain faith and confidence in the country's banking system; and protect it
from illegal schemes and machinations.

VISION

By 2023, PDIC will be a leading institution in governance, recognized for its operational excellence in
depositor protection and responsiveness to changing times.

MISSION

We protect the depositing public while promoting confidence and stability in the banking system

Public Policy Objectives

PDIC was established to promote and safeguard the interests of the depositing public by way of providing
insurance coverage on all insured deposits. PDIC also aims to strengthen the mandatory deposit insurance
coverage system to generate, preserve, and maintain faith and confidence in the country's banking system,
and protect it from illegal schemes and machinations.

Mandates
Consistent with its public policy objectives, the PDIC has the following mandates:

I. Deposit Insurance. PDIC provides a maximum deposit insurance coverage of PhP500,000 per
depositor per bank. To pay claims on insured deposits, PDIC builds up the Deposit Insurance Fund

Page 25 of 27
 (DIF) primarily through assessments of banks at an annual flat rate of 1/5 of 1% of their total
deposit liabilities.
II. Receivership of Closed Banks. PDIC proceeds with the liquidation process upon order of the
Monetary Board of the Bangko Sentral ng Pilipinas (BSP). The assets of the closed bank are
managed and eventually disposed of to settle claims of creditors in accordance with the preference
and concurrence of credits as provided by the Civil Code of the Philippines.

Membership

Membership with PDIC is mandatory for all banks licensed by the BSP to operate in the Philippines:

• Banks incorporated under Philippine laws, such as commercial banks, savings banks, mortgage
banks, stock savings and loan associations, development banks, cooperative banks, and rural banks
• Domestic branches of foreign banks

As of 31 December 2020, there are 535 banks in the Philippine banking system. These consist of 46
commercial banks (including branches of foreign banks), 48 thrift banks (savings banks, mortgage banks,
stock savings and loan associations, and development banks), and 441 rural banks (including cooperative
banks).

Scope of Deposit Insurance Protection

PDIC provides a maximum deposit insurance coverage of PhP500,000 per depositor per bank. It covers all
types of bank deposits in banks whether denominated in local or foreign currencies. All deposit accounts
of a depositor in a closed bank maintained in the same right and capacity shall be added together. A joint
account shall be insured separately from any individually-owned deposit account.

As of 31 December 2020, around 80.1 million accounts in 535 banks are covered by deposit insurance. Of
the total number of accounts, 96.7% are with balances not exceeding the maximum deposit insurance
coverage of PhP500,000 per depositor per bank. For the same period, total deposits in the Philippine
banking system amounted to PhP14.87 trillion, of which 20.6% is covered by deposit insurance. However,
Depositors with valid deposit accounts with balances of P100,000 and below are not required to file claims.

Page 26 of 27
 Explanations:

• All the four deposit accounts (i.e., Account Nos. 1 to 4) are owned by the same person, Juan
Dela Cruz, and maintained in the same Bank (Head Office and all its Branches), thus, the
balance of the accounts will be added together, as they are maintained in the same right and
capacity, regardless of account type and banking unit/branch. Total amount of insured deposit
cannot exceed P 500,000.00, the Maximum Deposit Insurance Coverage (MDIC).

• Of the total balance of P 900,000.00, the amount insured is P 500,000.00 and the uninsured
amount is P 400,000.00.

Assessment/Activities:

Quiz/Seatwork
Research Work/Fieldwork
Recitation

References:

https://www.greenclimate.fund/ae/land-bank#projects

https://www.thebalance.com/what-is-a-commercial-bank-315196
https://www.studocu.com/ph/document/divine-word-college-of-san-jose/financial-accounting-and-
reporting/financial-intermediation/11852281

https://www.pdic.gov.ph/generalbankinglaw#sec3

https://www.studocu.com/ph/document/divine-word-college-of-san-jose/financial-accounting-and-
reporting/financial-intermediation/11852281
https://www.banksphilippines.com/2019/02/thrift-banks-in-the-philippines.html

https://www.bsp.gov.ph/Pages/Regulations/BankingLaws/RA7353.aspx

Page 27 of 27