Banking and Finance of it come from the proceeds of

loans.
Midterms Reviewer
BANKS AND FINANCIAL
Lesson 1 OVERVIEW OF THE BANKING INTERMEDIATION
INDUSTRY
BANK
SEMANTICS
- Is a d=financial intermediary that
FINANCIAL SYSTEM
accepts deposits and channels those
- Is a network of various institutions
deposits into lending activities.
which generate, circulate, and control
- Financial institution where we can
money and credit.
store our money
- It provides intermediation between
- Came from the Italian word “BANCO”
the suppliers and users of credit.
which means “bench”
BANKING SYSTEM
- Refers not only to various types and
kinds of banks operating in the
Philippines but also to all effective
laws, regulations, policies, and
practices affecting their operations
and management

BANKING INSTITUTION ECONOMIC SIGNIFICANCE/ROLES

- Refers to a financial institution
engaged in the “receipts of deposits”
and in the “loaning out of funds”
NATURE OF THE BANKING SYSTEM
“A BANK MAKES MONEY OUT OF
OTHER PEOPLE’S MONEY”
- A bank will be earning a profit by
reinvesting the accumulated deposits
from the depositors which are the
people. The interest rates on deposits
and interest on the borrowed funds are
considered as the profit of the bank
and this is the so-called “money” made
by the bank in using the money of
depositors – referred to as the “other
people’s money”
PRINCIPLES OF THE BANKING
BUSINESS
1. Partial Reserve System – means
that a portion of the amount
deposited to and accepted by the
bank shall be set aside by the bank
to meet the claims of depositors
2. A Greater Portion of Deposits in
Commercial Bank Arises Out form
the Proceeds of Loans – means
that all the accepted or
accumulated deposits by the
commercial banks, a greater part
OF BANKS
1) POOLING SAVINGS
- Banks accept resources
from a large number of
small savers in order to
provide large loans to
borrowers
2) SAFEKEEPING & ACCOUNTING
- Banks safe keep depositors’
savings
3) PROVIDING LIQUIDITY
- Will contribute to economic
well-being by allowing
depositors to transform
their financial assets into
money quickly at a low cost
4) DIVERSIFYING RISK
- Banks provide investors
with the ability to diversify
even small investments
5) COLLECTING AND PROCESSING
INFORMATION SERVICES
- Bank allows the generation
of large amounts of
standardized financial
information
WHY THE STATE SUPERVISES BANKS
✓ Banks are entrusted with other
people’s money
✓ The state wants the assurance that
the banks will perform their
 function in the best interest of their - Transparency of
customers government/business transactions
✓ The state must exert its restraining is promoted
influence to safeguard the welfare - Digital recording and monitoring
of its constituents reduce manual errors.
THE PHILIPPINE BANKING TODAY - Efficiency in the provision of
E-BANKING services is improved.
- Also known as online banking or - Reputation is enhanced due to
web banking. better public perception.
- A method of banking in which the THREE CATEGORIES OF E-
customer conducts transactions
MONEY
electronically via the Internet.
1) ACCESS DEVICES
E-MONEY ➢ means any card, plate,
- Electronic money refers to money code, account number,
that exists in banking computer electronic serial number,
systems that may be used to personal identification
facilitate electronic transactions. number that can be used to
- Electronic money is used for obtain money, good,
transactions on a global basis. services
- Convertible to/from physical cash 2) CARD-BASED PRODUCTS
in authorized non-traditional cash- ➢ are prepaid cards in which
in/cash-out agent networks funds are stored in
electronic form on a
BENEFITS OF E-MONEY computer chip embedded
1) For transacting clients: in the cards.
- Safety a) Credit Card - “buy
- Convenience now, pay later”. It is
- Time Savings a 16-digit card
2) For e-money issuers or providers: number with an
- Add value to financial services expiration date and
- Enhance the ability to reach new authorized
client signature specimen
- More efficient service delivery at the back.
- Lower operating costs b) Debit Card - Are
- Ability to leverage extensive telco payment cards
and other non-bank agent linked to bank
networks. deposits or
prepaid/electronic
E-MONEY OPPORTUNITIES AND money accounts.
BENEFITS FOR LGUs AND NGOs c) Stored-Value Card -
is electronically
1) Opportunities transferable to
- Payroll thru mobile-based e- other electronic
money or e-banking wallets or deposit
- Digital payments to suppliers accounts.
- Digital payments from the general d) Beep Card -
public eliminates the
2) Benefits of digital government/business hassles of cash
transactions: payments.
- Cashless contact minimizes
leakages/fraud
 Ways to use the Beep
Card in the Philippines:
1. Pay fares in selected
bus lines
2. Pay toll fees
3. Pay for purchases at
convenience stores
4. Order meals at fast
foods joints
5. Buy movie tickets
3) PREPAID SOFTWARE PRODUCTS
OR NETWORK MONEY
➢ These involve funds that
are sorted in electronic form
and are transferred over
communication networks.
➢ Are simply a plastic
alternative to carrying
money around, often called
everyday cards
a) E-Cash - an internet-
based system that
facilitates the transfer of
funds.
THE PHILIPPINE EFT SYSTEM AND
OPERATIONS NETWORK (PESONET)
- The first ACH under the NRPS, was
launched on 08 November 2017.
- It is a batch electronic fund transfer
(EFT) credit payment scheme,
which can be considered an
electronic alternative to the paper-
based check system.
INSTAPAY
- InstaPay is a real-time low-value
EFT credit push payment scheme
for transaction amounts up to
P50,000.
Lesson 2 BANK ORGANIZATION
PRELIMINARIES IN BANK
ORGANIZATION:
1) The preparation of a project study. This
will outline their course of action.
Project Study = is an investigation
which ascertains the viability of an
undertaking.
Feasibility study =a systematic
survey, analysis and evaluation of a
project on the basis of available
statistics and forecasting
PARTS OF A PROJECT STUDY:
a) Organization & Management Aspect .
- form of ownership; organizational
chart and officers & key personnel.
b) Marketing Aspect.
- size of demand for the product;
description and price of the
product to be sold; supply-demand
analysis; factors affecting the
market
c) Technical Aspect.
- the product, process involved;
machinery and equipment;
materials and supplies; plant
location and layout; building and
facilities
d) Financial Aspect.
- total project cost; sources of
financing the project; projected
financial statements; and financial
analysis.
e) Socio-Economic Aspect.
- employment and income; taxes;
supply of commodities; and
demand for materials.
2) Gathering of facts and figures about
banks. As organizers, they must be
well-versed with the basic concepts or
principles about banks and its system.
3) Encouragement of group of moneyed
and experienced individuals to finance
the project. Information drive must be
undertaken so as to determine those
individuals with money and
experiences to operate a bank.
4) Looking into the legal aspects affecting
banks. The organizers must consider
existing government laws which might
affect bank’s organization &
operation.
5) Looking into taxation measures. It is
also important to consider the possible
taxes that will apply to the financial
aspects of banks.
GENERAL ASPECTS IN BANK’S
ORGANIZATION:
1) Economic Justification for Bank. The
organizers must be armed with facts
and figures carefully analyzed
a) degree of competition = determine
whether it is still practical to
establish a bank or not, considering
the number of existing competitors
 b) degree of risk = determine the
amount of calculated risks so as to
determine whether they are
capable of combating them or not
c) potential customers = they must
determine who will be their future
customers
d) availability of manpower = will
there be available and ready
personnel to man the operation to
the proposed project
e) businesses and products within the
locale = what are the kinds of
business that are situated within
the area which might affect the
operation of a bank within the
area
f) habits and customs of the people =
do the people have the habits of
thrift or do they have positive
attitude to avail themselves with
credit facilities.
2) Selection of Stockholders. The
organizers must consider this because
such choice may depend its success or
failure.
3) Determination of the Bank to Be
Formed. This will depend upon the
economic survey
4) Determination of the Capital to Be
Raised. Organizers must be aware the
least minimum requirements
INITIAL STEPS IN BANK’S
ORGANIZATION:
1) Accomplishment and Filing of
Application for Authority to Establish a
Bank
Required Documents to Support the
Application:
a) Agreement to Organize a Bank
(Form # 2). This must be
accomplished in 5 copies and
properly notarized in a prescribed
form.
b) Information Sheets (Biodata)
(Form #3). This must be
accomplished in 3 copies under
oath by all incorporators, proposed
directors & officers and subscribers.
c) Evidence of Filipino Citizenship. By
incorporators, proposed directors &
officers and subscribers.
d) Statement of Assets & Liabilities. As
of date not earlier than 90 days
prior to the filing of application.
e) Certified Photocopies of Income
Tax Returns. For the last three (3)
calendar years
f) Clearances from the NBI & BIR, etc.
2) Consideration of Formal Application.
Application submitted personally or
through mails is formally
acknowledged by the SES –
Supervision & Examination Sector
Department III
3) Conduct of Economic Survey & Credit
Investigation. Upon submission of the
application, the SES Department III
will conduct an economic survey = of
the locality
4) Processing of Application
5) Requirements Before Submission of
Formal Application to the MB for Final
Action.
6) Notice of Approval of the MB for
Permit to Organize. This will allow the
organizers to prepare the bank to
open for business
Lesson 3 BANK MANAGEMENT
THE STOCKHOLDERS
➢ The stockholders elect the Board of
Directors by virtue of their right to
vote.
➢ Amending the by-laws
THE BOARD OF DIRECTORS
➢ composed of a number agreed
upon as contained in the by-laws
between 5-15 members.
➢ the policy formulating body
➢ shall be headed by a Chairman =
whose duty is to preside over the
meetings of the board.
➢ In small banks = the chairman of
the board and the President may
be only one person to achieve
harmony, efficiency and economy.
➢ In larger banks = the officers are
held by 2 separate persons.
 Special Committees Created by
the Board:
1) The Executive Committee. deals
with administrative matters it
often meets to prepare the
groundwork for board meetings. It
acts as an advisory body to the
board; and it prepares policies
which are eventually approved by
the board.
2) The Loan & Discount Committee.
deliberates all matters pertaining
to: (a) loans and discounts; (b) lines
of credit; and (c) other related to
loaning functions
3) The Investment Committee. It is
concerned with the investment
portfolio = the collection of
different investment commitment
of the bank.
4) The Trust Committee. It concerns
with the fiduciary function =
(administering money or property
in trust) of the bank.
5) The Examination Committee. To
improvise methods to conduct such
internal examination and
supervision
BANK OFFICERS & EMPLOYEES.
➢ Officers are responsible for the
efficient and harmonious
administration of their duties.
➢ the policy implementing body .
1) Chairman of the Board.
- preside on all meetings of the BOD,
Executive Committee & the
Stockholders;
- maintain relationship between the
stockholders & the BOD; and
between BOD & various
committees.
2) President.
- chief executive officer of the bank.
- He is responsible for the active
management of the bank.
- the court of last resort when the
Board is in session = he shall be the
final decision maker
3) Vice-President.
- He assists the President; and he
takes over the duties and
responsibilities of the President
when the latter is absent or
incapacitated.
a. Executive VP = is sometimes
called 1st VP or Senior VP =
assists the President and acts in
his behalf.
b. Administrative VP = is the
coordinating officer of the bank
& the liaison between the
President & all other officers of
the bank.
4) Executive Secretary.
- He is the Chief Recording Officer of
the bank.
- maintains all corporate records
5) Manager.
- The manager shall take charge of
the management of the affairs of
the bank.
6) Cashier.
- He shall be the custodian of the
funds and securities of the bank; he
shall keep and control all
accountable forms
- he shall prepare and sign checks for
duly approved loans and
disbursements.
7) Accountant.
- The accountant is responsible in
recording all transactions and the
preparation of reports.
8) Comptroller.
- He takes care of all the accounting
and statistical work of the bank.
9) Auditor.
- He verifies the accounts resulting
from banking operations; and
conducts periodic bank
examination.
BANK OFFICE & BRANCHES:
➢ Bank Office. The bank office is a
prerequisite to the issue of a
certificate of authority to operate
by the MB of the BSP.
➢ Branches. With prior approval of
the MB, it may establish branches,
or extension offices on a
nationwide basis.
ACQUISITION OF MOTOR VEHICLES.
➢ An investment in furniture, fixtures,
equipment and motor vehicles of a
bank shall be limited to 15% of the
private paid-up capital and
surplus of the bank.
 BANKING DAYS & HOURS
➢ Banking Days. Banks observe a
five days banking week from
Mondays thru’ Fridays with the
option to open on Saturdays. They
also have the option to open
during local or national holidays
➢ Banking Hours. The minimum
number of hours a bank shall be
open during banking days shall be
six hours which could be set
between 8:00 a.m to 8:00 p.m.
BANK OPERATIONS:
Three (3) Distinct Functions:
1. The Executive Function. Here the
banker must be a man with:
a. creative managerial ability =
because he must of necessity be
faced with policy making
b. charming personality = because he
must be establishing harmonious
relations with customers to get
business
c. shrewd and patient = practical,
hard-headed, acute in perception
and sound judgment; and
d. above average intelligence
2. The Teller Function. The teller must be
patient, understanding, accurate and
careful because:
a. he accepts deposits
b. he changes checks for cash
c. he changes big bills with smaller
denomination
d. he releases checks or cash loans
e. he receives payments for loans.
3. The Bookkeeping Function. The
bookkeeping function is responsible in
keeping faithful records of the events and
accounts passing through his hands