BANKING - Banking and Financial Institution

Lesson1 Classification of Banks

Brief history of Banks in the Phil.
The Bangko Sentral ng Pilipinas acts as the central monetary authority of the Philippines
 The country’s central bank was created in July 1993 in accordance with the provisions of the 1987
Philippine Constitution and the New Central Bank Act of 1993.
 The BSP took over from Central Bank of Philippines, which was established on 3 January 1949, as
the country’s central monetary authority.
 It supervises the operations of banks in the Philippines and provides policy directions in banking,
credit, and money matters.
3 Main Categories
1. Rural and Cooperative Banks
2. Thrift or Savings Bank
3. Universal or Commercial Banks
 Offer the widest variety of banking services among financial institutions.
 They also represent the largest single group, resource-wise, of financial institutions in the
country.
 Universal banking can be defined as a banking system that offers a wide range of banking and
financial services (like insurance, development banking, investment banking, commercial
banking, and other financial services) in comparison to traditional banking institutions; in simple
terms, it can also be understood as a combination of all three services that is retail banking,
investment banking, and wholesale banking. This system offers asset management, deposits,
payment processing, investment advisory, underwriting, securities transactions, financial
analysis, merchant banking, factoring, mutual funds, credit cards, auto loans, insurance, housing
finance, retail loans, etc.
 Under the General Banking Law of 2000 (GBL), a universal bank is defined as a commercial
bank with the additional authority to exercise the powers of an investment house and invest in
non-allied enterprises. An ordinary commercial bank does not have that authority.
 All enterprises not otherwise specified as allied (whether financial or non-financial) would be
classifiable as non-allied. Thus, investments in mutual funds (as opposed to their management
companies) would be considered as non-allied.
What bank products and services are offered by BDO?
 BDO is a full-service universal bank that provides a complete array of industry leading products and
services to the retail and corporate markets including Lending (corporate, middle market, SME, and
consumer), Deposit-taking, Foreign Exchange, Brokering, Trust and Investments, Credit Cards,
Corporate Cash Management and Remittances. Through its subsidiaries, the Bank offers Leasing and
Financing, Investment Banking, Private Banking, Bancassurance, Insurance Brokerage and Stock
Brokerage services.
 BPI is a universal bank and together with its subsidiaries and affiliates, it offers a wide range of
financial products and solutions that serve both retail and corporate clients.
 MetroBank, Established in 1962, the Metropolitan Bank & Trust Company has become the premier
universal bank and among the foremost financial institutions in the Philippines.
 With a history spanning more than 50 years, it aims to deliver meaningful banking to Filipinos
everywhere.
 It boasts diverse product portfolio including investment banking, thrift banking, leasing and
financing, bank assurance, and credit cards.
 It offers a full range of services to large local and multinational corporations, middle-market and
SMEs, high net-worth individuals and retail segment.
 Universal banks are advanced commercial banks that offer an exclusive range of services under one
roof. They are updated versions of commercial banks, but not all commercial banks are universal.
Circular No. 854
SERIES OF 2014
MORB - Manual of Regulation for banks
Minimum Capitalization of Banks
Bank Category Required Minimum Capitalization
UBs

Head Office P3.00 billion

Only Up to 10 branches 6.00 billion
11 to 100 branches 15.00 billion
More than 100 branches 20.00 billion
KBs
Head Office Only P2.00 billion
Up to 10 branches 4.00 billion
11 to 100 branches 10.00 billion
More than 100 branches 15.00 billion
Number of Banks Per Category
UB 20
KB 25
THRIFT BANKS 43

RURAL BANKS 381

COOP BANKS 24
The Philippine Financial System
Financial System
 A complex structure and operation which every individual and business organization in a civilized
society are directly involved.
 A set of institutions, such as banks, insurance companies, and stock exchanges, that permit the
exchange of funds.
 Can be perceived on a company, regional, or global scale, which facilitates the practice of
exchanging funds between one entity to another.
 Financial systems are regulated, as their processes influence and contribute to the growth of many
assets.
 A network that facilitates the practice of exchanging funds between one entity to another.
Nature and Necessity of Finance
Financial System
- A network of various institutions, together with government agencies, laws and policies, which
generates, circulates and controls money credit.
 Provides a link between the lenders and the borrowers of money.
 Finances the socio economic programs of the country.
 This is good for the whole economy.
Functions of Financial Institutions
 To facilitate the transfer of funds from the savers to the users
 Matching supply and demand for funds
 Investigation and credit analysis
 Provisions of liquidity
 Provides payments system
 It provides service as intermediaries of the capital and debt markets.
 They are responsible for transferring funds from investors to companies, in need of those funds.
 The presence of financial institutions facilitates the flow of cash through economy.
Basic Components of Financial System
1) Financial Institutions - Value financial assets whenever making loans to business and consumers.
Also called financial intermediaries. (Banks and other non-bank financial institutions)
2) Financial Markets - Markets in which financial instruments can be traded. (Stock Market, Bond
Market, Money Market)
3) Financial Instruments - Legal agreements that require one party to pay money or something else of
value or to promise to pay under stipulated conditions. (Stocks, bonds, financial loans, financial
contracts)
4) Financial Services - Economic services provided by the finance industry.
5) Money - medium of exchange and acts as store of value.
General Functions
1) Liability – Asset Transformation - they issue claims to their customers that have characteristics differ
from those of their own assets.
2) Size Transformation - They provide large volume of finance on the basis of small deposits or unit
capital.
3) Risk Transformation - They distribute risk through diversification and thereby reduce it for savers as
in the case of mutual funds.
4) Maturity Transformation - They offer savers alternate forms of deposit according to their liquidity
preferences, and provide borrowers with loans of requisite maturities.
Specific Functions
1) Investigation and Credit Analysis - Loan application is properly evaluated to ensure the efficient use
of credit and to protect the savings of individuals as well as to minimize the risk of non-payment of
loans.
2) Matching the Supply and Demand for Funds - Financial institutions are money brokers
3) Provision for Liquidity - Through their brokerage function, they provide an organized market, the
investor can find a buyer for his debt or ownership claims.
4) Provides payment system - The transfer of goods and services has become convenient, faster and
economical.
Structure of Philippine Financial System
Bangko Sentral Ng Pilipinas
 The BSP actually started out as the Central bank of the Philippines established in January 3, 1949 as
the Philippines’ Central Monetary Authority.
 In accordance with the pursuant of the 1987 constitution, the New Central Bank Act (R.A. 7653) was
signed in June 14, 1993, and took effect on July 3, 1993 and was renamed as the Bangko Sentral ng
Pilipinas.
 Bangko Sentral ng Pilipinas supervises and regulates the financial system.
 It provides policy directions in the areas of money, banks and exercise such regulatory powers and
other pertinent laws over the operation of finance companies and non-bank financial institutions
performing quasi-banking functions.
 The BSP’s primary objective is to maintain price stability, financial stability and economic stability.
 Current BSP Governor – Dr. Felipe M. Medalla
Main Functions of the BSP
Liquidity management.
- The BSP is responsible for liquidity management by formulating and implementing monetary policy
aimed to influence the supply of money. The BSP may decide to contract or expand the economy.
Consistent with its primary objective the BSP stands on its three pillars: price stability, financial
stability, and economic stability.
1) Lender of last resort - The BSP is also the lender of last resort to banks facing bankruptcy.
2) Currency Issue - The BSP has the exclusive power to issue the national currency.
3) Financial Supervision - The BSP supervises banks and exercises regulatory powers over non-bank
institutions performing quasi-banking functions.
4) Management of Foreign Currency Reserves - Maintain sufficient international reserves to meet any
foreseeable net demands for foreign currencies in order to preserve the international stability and
convertibility of PHP
5) Determination of the exchange rate policy - Being the banker, financial advisor and official
depository of the Government, its political subdivisions and instrumentalities and GOCCs.
In the Philippines settings, Financial System is composed of banking institutions and nonbank
financial intermediaries, including commercial banks, specialized government banks, thrift banks and rural
banks.
Banking Institutions
I. Private Banking Institutions
1. Expanded Commercial Banks/Universal Banks
2. Commercial Banks
3. Thrift Banks
 Savings and Mortgage Banks
 Private Development Banks
 Stock Savings and Loan Associations
II. Private Banking Institutions
1. Rural Banks
2. Cooperative Banks