The Philippine

Financial System
The Bangko Sentral ng Pilipinas

• The Bangko Sentral ng Pilipinas (BSP) was created by the Republic

Act No. 7653, otherwise known as the New Central Bank Act of
1993.
• The BSP is now the Philippines’ central monetary authority that
provides policy directions in the areas of money, banking and
credit.
• The BSP’s powers and functions are exercised by its Monetary
Board, consisting of seven members appointed by the president of
the Philippines.
• One of the government sector members of the Monetary Board
must be a member of the Cabinet designated by the President of
the Republic, which position is currently held by the Secretary of
Finance.
• The New Central Bank Act authorizes the Governor of BSP to
appoint up to three Deputy Governors, subject to the approval of
the Monetary Board.
The Bangko Sentral ng Pilipinas

• The Governor is the chief executive officer of the BSP

and is required to direct and supervise the operations
and interval administration of BSP.
• The BSP is aided in its bank monitoring and
examination processes by credit rating agencies and
financial conglomerates.
• The BSP is also into the upgrading of its domestic
prudential standards in areas of capitalization,
connected or pooled lending, loan provisioning, data
disclosure, and qualifications of owners and managers.
• The BSP likewise imposes the requirements on the
operations on e-bankers.
• The BSP is backstopped in this regard by the passage
of e-commerce law in June 2000 which facilated the
exchange of information and promoted the security of
electronic transactions.
The Banking Institution
• The Banking Institution in the Philippines can be categorized as
private banking and government banking.
• The private banking institutions are comprised of commercial
banking such as universal banks and ordinary commercial banks;
thrift banks like savings and mortrage banks, private development
banks, and stock savings and loan association; and the rural
banks.
• The govenment banking institutions, on the other hand, consist of
Philippine National Bank, Development Bank of the Philippines,
Land Bank of the Philippines, and the Philippine Amanah Bank
Private Banking Institution
1. Commercial Banking Institutions.
The Banks that fall under commercial banking institutions are the ordinary
commercial banks or non-expanded commercial banks. These banks continue
to account for the bulk of the total resources of banking industry.
2. The Thrift Banks.
Thrift banks are primarily engaged in mobilizing the small savings of the
people. They provide funds for agriculture and industry at reasonable
interest rates. The small producers like farmers, fishermen, craftsmen, and
poor consumers can rely on such banks for financing their production and
consumptions inputs. The following banks fall under the category of Trift
Banks
• The Savings and Mortrages Banks.
The primary function of a savings and mortrage bank is to recieve time
deposit of different types and to invest its funds in long term investment.
• The Savings and Loan Association.
Very simular to the savings and mortrage banks are the savings and loans
associations nowadays. However, these institutions may either be stock
or non-stock corporations.
• The Private Development Banks.
This is quite different from the government institution of the same name. It is
a government entity, formely the Rehabilitation Finance Corporations.
• The Rural Banks.
Rural Banks fulfill the investment function by allowing small farmers to
finance their needs through the granting of loans for capital or other uses.
Government Banking Institutions
1. The Philippine National Bank.
The Philippine National Bank (PNB) operates under the provision of Executive
Order No. 80, the 1996 revised charter of PNB.
2. The Development Bank of the Philippines.
The Development Bank of the Philippines (DBP) started operating in 1935 as
the National Loan and Investment Board. Its first mission was to coordinate
and manage trust funds.
3. The Land Bank of the Philipines.
The Agrarian Reforms Code created the Land Bank of the Philippines (LBP) to
finance the acquisition and distribution of agricultural estates for division and
resell these small landholders.
4. The Al-Amanah Islamic Investment Bank of the Philippines.
The Al-Amanah Islamic Investment Bank of the Philippines (Islamic Bank) was
created under Republic Act No. 6848 for the purpose of promoting and
accelerating the socio-economic growth of Mindanao, particularly the
provinces of Cotabato, Lanao del Sur, Lanano del Norte, Zamboanga del
Sur, Zamboanga del Norte, and Sulu.
Non-Bank Financial Institution
These are other financial institutions which engage in specific
functions. They provide services related to claims, financial
information, and advice, manage porfolios of financial assets on
behalf of other economic units, buy and sell claims on institution
from clients, and assist in finding sources for those economic units
seeking loans. These either private or government non-bank
financial institution.
Private Non-Bank Institutions
1. Investment House/Banks.
The term “investment house” is defined to mean as “any
enterprise” which engages in the underwriting of securities of
other corporations “. Underwriting is the act or process of
guaranteeing the distribution and sale of securities of any kind
issued by another corporation. Securites are written evidences of
ownership, interest, or participation in any enterprise, or
written evidences of indebtesness of a person or enterprise.
2. Securities Brokers/dealers.
Pursuant to hte provision of the Revised Securities Act, no broker,
dealer, or salesman must engage in business in the Philippines as such
broker, dealer, or salesman or sell any securities, including securities
exempted under the said law.
3. Building and Loan Associations.
A building and loan association is a special type of savings
institution. Because of its very nature, however, it falls under this
category in view of the fact that it also receives savings from
members and lends fund to them.
4. Credit Unions.
A credit unions is another type of savings institutions. It also has for
its purpose the inculcation of the habit of thrift, frugality, and the idea of
helping one another.
5. Private Insurance.
Private insurance companies contribute to the contry’s socio-
economic development as well as to the insured.
6. The Pawnshop.
Pawnshop provides credit to small borrowers who are not qualified to
obtain small loans from financial institution. In pawnshop, the cost of
borrowing and terms of payment are generally fair.
7. Trust Companies.
A trust company is any corporation formed or organized for the
purpose of acting as trustee or administering any trust or holding
property or on deposit for the use. Benefit, or behoof of others.
8. Non-Stock Savings and Loans Association.
A non-stock savings and loans associations is a corporation engaged
in the business of accumulating the savings of its member.
9. Financing Companies.
Financing companies or partneships, except those regulated by the
Bangko Sentral, the Insurance Commisioner, and the Cooperative
Administration Office which are primarily organized for the purpose of
extending credit facilities to consumer and to industrial, commercial,
or agricultural enterprises.
10. Other Non-Bank Financial Institutions.
These are financial institution that are unknown to many people.
Fund managers, lending investor, and venture capital corporations are
among these institution.
Government Non-Financial Institution
1. The Government Service Insurance System.
On May 13 May 1937, thew Government Service Insurance System
(GSIS) started its operation. Presently, the GSIS administers the following:
Life Insurance Fund, Retirement Fund, Health Insurance
Fund/Medicine, State Insurance
Fund/Employees’ Compensation, General Insurance
Fund/Property Insurance, and Barangay Officials’ Life Insurance.

2. The Social Security System.

On 1 September 1957, the Social Security System (SSS) started its
operation. At first SSS granted only death, disability, sickness, and
old-age benefits under its social security program for the
workers/employees in the private sectors. As its capacity the funding
and administrative experience grew, other benefits have added to the
program such as hospitalization benefits under the Medicare
program, employees’ compensation benefits, and maternity benefits.
3. Philippine Export and Foreign Loan Guarantee Corporation.
The Presidential Decree No. 1080 entrusts the Philippine
Export and Foreign Loan Guarantee Corporation (PEFLGC) to
undertake the following:
• To guarantee approved foreign loans, in whole or in part,
granted to any domestic entity, enterprise, or corporation,
majority of the capital of which is owned by citizen of the
Philippines.
• To guarantee Philippine banking and financial institutions
against loss that may be incurred in connection with:
1. The grant of loans/credit accomodations to
exporters, producers of export products, or contractors with
approved service contactors abroad, provided that such
exporters, producers or service contractors are Filipinos or entities
majority of the capital of which are owned by citizens of the
philippines; and
2. the inssuance of standby letters of credit or of letters of
guarantee, as the case may be, to secure the performance of
approved service contracts abroad entered into by any domestic
entity, enterprise, or corporation, majority of the capital of which
are owned by citizen of the Philippines.
4. The National Home Mortrage Finance Corportation.
The National Home Mortrage Finance Corporation’s (NHMFC)
primary purpose is to develop and provide a secondary market for
home mortrages granted by public and/ or private home financing
institutions.
Under Section 5 of Presidential Decree No. 1267, the NHMCF is
authorized to exercise the following powers and functions:
• To purchase, acquire, sell, discount, refinance, or otherwise deal in
home mortrages or participations therein under such terms and
conditions as may be prescribed by the Board of Directors of the
corporations.
• To borrow funds from domestic or foreign private or public financial
institutions as may from time to time be required for its operations, and to
issue bonds, promissory notes debentures, and other debt instuments in
local or foreign currency.
• To own, lease, purchase or otherwise acquire, sell or otherwise dispose
of property, real or personal as may be necessary and appropriate for
the conduct of its business.
• To invest funds or monies of the corporations not invested in mortrage
loans in securities issued by the national government, Bangko Sentral
and other
 government entities, including government-owned and controlled
corporations, the servicing and repayment of which are fully
guaranteed by the Republic of the Philippines.
• To enter into and perform such contracts with any person or
entity, public or private, as may be necessary, proper, or
conductive to the attainment or furtherance of the objectives and
purposes of the corporations.
• To adopt, alter, and use a corporate seal; to sue and be sued; and
generally, to exercise all the powers of a corporation under the
Corporation Code of the Philippines which are not inconsistent
with
P.D 1267.
• To promulgate such rules and regulations and to perform any
and all things as may be necessary and proper to carry out its
responsibilities, powers, and function under P.D No. 1267.
⦿ Financial System describes collectively
the financial markets, the participants, and
the instruments and securities that are
traded in the said markets. The functions of
the financial system is to channel the funds
from lenders to the borrowers, provide a
medium of exchange, provide a
mechanism for risk sharing and provide a
channel through which the central bank
can influence the economy, in general,
and the financial system in particular.
Households
⦿ Households or consumers are generally described as that
group receiving income, majority of which typically come from
wages and salaries. Gross savings are equal to current income
less current expenditures. Such income is spent on goods and
services and a part is saved. Goods that are consumed within
a current period are termed non-durable consumer goods.
Goods that will last for more than a year are termed durable
consumer goods. Consumers or households purchase non-
durables from current income and borrow for the durables like
cars, washing machines, air-conditioners and houses.
Financial Institutions/ Intermediaries
⦿ Financial institutions channel the funds from lenders to
borrowers. They can also be the lenders and borrowers
themselves. If they buy securities they are lenders but if they are
the ones issuing the securities, they are borrowers.
Non-Financial Institution
⦿ Non-Financial Institution are businesses such as trading,
manufacturing, extractive industries, construction and genetic industries.
Non-financial institution can also be the lender and borrowers just
like financial institution.
The Government
⦿ The government is the national, provincial, city and towns
comprising the Philippines as a whole.
The Central Bank
⦿ Is an institution that manages a state’s currency, money supply and
interest rate. Central banks also usually oversee the commercial banking
system of their respective countries.
Foreign Participants
⦿ Foreign participants refers to the participants from the rest of the
world such as households, government, financial and non-financial firms,
and central bank. They exchange goods and services across national
boundaries. International trade and international finance are parts of
globalization.
 The different Institutions governed by BSP basically divided
into
Banking System and Non-banking System.
⦿ *Monetary Board

⦿ *Monetary Stability Sector

⦿ *Supervision and Examination Sector

⦿ *Resource Management Sector

⦿ *The Structure of Different Sector

⦿ The power and functions of the Bangko Sentral ng Pilipinas are
exercised by its Monetary Board, which has 7 member appointed by
the President of the Philippines. Under the “New Central Bank Act.”
Establishes certain qualifications for the members of the Monetary
Board and also prohibits members from holding certain positions
with other governmental agencies and private institutions that may
give rise to conflict of interest. With the exception of the members of
the Cabinet, the Governor and other members of the Monetary
Board serve terms of 6 years only to be removed for cause.
⦿ 1. Maintain monetary policies conducive to a balanced and sustainable
growth of the economy. - It is about maintaining the rule of conduct or
policies in order to have a good supervising and regulating the financial
system of the Philippines. It is mobilizing and directing the resources to attain
sustainable growth of the economy. They provide policy directions in the
areas of money, banking, and credit.
⦿ 2. Maintain price stability in the country. - One of the goals in the economy is
to attain price level stability or stable in general price level and the failure to
achieve this may mean a problem if inflation.
⦿ 3. Promote and maintain monetary stability and the convertibility of the
peso. - It should maintain the monetary stability to regulate the supply of
money in the economy. It is about influencing the timing, cost, and
availability of money. And maintaining the convertibility of peso, the
conversion of money. A central bank needs to be able to meet its domestic
and international payments to create confidence in the people it serves and
the countries it deals with abroad.
⦿ 4. Maintain stability of the financial system - They ensure that financial
institution encourage people and companies to save for the future, make
deposits, etc., to oversee that will maintain its permanence in the financial
system.
⦿ 5. Provide payment and other financial
services to the government, the public,
financial institutions, and foreign official
institutions. - They continue to give the needs in
the financial environment offering financial
services like in the: Government – issuing
treasury bills Public – make deposits, borrow
and invest, withdrawals Financial Institutions –
acquiring capital for investment Foreign official
institution – letter of credit
⦿ 6. Supervise and regulate depository
institutions. - It is about directing and controlling
the fund that was accepted as deposits from
surplus units.
⦿ 1. Issue rules and regulations it considers necessary for the
effective discharge of the responsibilities.- They issue rules and
regulation in order to direct and to guide for conduct that need
to do their responsibilities well enough for the good run of the
BSP.
⦿ 2. Direct the management, operations, and administration of
Bangko Sentral. - They are the once to plan for management,
operation, and administration, in how to manage it, to provide with
an orderly structure of Bangko Sentral, and in order to have a clean
arrangement of all the parts as a whole.
⦿ 3. Establish a human resource management system. - They are in
charge to set up the employees which is the need in financial and
physical resources that includes selecting, hiring, appointment,
transfer, promotion and even dismissal of all personnel.
⦿ 4. Adopt an annual budget for and authorize such expenditures in
Bangko sentral. - They have the power to give the annual budget,
the expenses, which are the financial resources for the effective
operation of Bangko Sentral.
⦿ 5. Indemnify its members and other officials of Bangko Sentral. -
They ensure the members and officers in any damage or loss of
Bangko Sentral, that every personnel was monitored compliance to
banking laws to promote a sound and healthy banking system.
⦿ Bangko Sentral ng Pilipinas has 7 functions such as (1) Bank of Issue, (2)
Government’s banker, agent, and adviser, (3) Custodian of the cash
reserves of banks, (4) Custodian of the nation’s reserves of international
currency, (5) Bank of rediscount and lender of last resort, (6) Bank of
central clearance and settlement, (7) Controller of Credit.
⦿ Bank of Issue
BSP is the only one of the financial institutions who has the rights to
produce, print out paper bills and mint coins. This is enact to ensure the
uniformity in design and content of money, for the people to prevent the
circulation of a fake money and for us to know if the money is either be
fake or real. It can also effect the government supervision over money
supply, to give prestige or honor to the central bank and become a good
source of income for government. BSP do not easily print out money, they
need to know first the state of our economy because if BSP print out money
the prices of goods and services will increase and the price stability will not
be balanced.
⦿ Government’s banker, agent, and adviser
All the money of all agencies of our country will handle by BSP, if ever there
is a transaction about money to other party, BSP is the one who will
transact or talk to them. BSP is also responsible in importation or foreign
exchange, because we all know that BSP is the one who has the skills and
knowledge about that.
Custodian of the cash reserves of banks
⦿ Banks are required to have fund reserved to BSP because if the bank needs money
they have money that is reserved to BSP. If there are some problems like money crisis
or a client withdraws all his/her money, bank has reserved money where they can
use it for that problem. Fund Reserved has an interest.
Custodian of the nation’s reserves of international currency
⦿ BSP is the one who handle all the international currencies, gold and more that
owned by our country. And that international currency and gold is a requirement in
printing out money.
Bank of rediscount and lender of last resort
⦿ Bank can borrow money to BSP and in that way they can be a lender of last resort.
And about rediscounting, it is a process of a discounted amount will be discounted
again, example of that is when one party borrows money that money will have an
interest and also has a deadline or due date and when other party did not pay on
or before the deadline, the borrowed money will be given another interest that the
borrower needs to pay.
Bank of central clearance and settlement
⦿ We all know that BSP is the mother of all banks; it means that in every
disagreement of two banks BSP is responsible to clear things between the two
banks. BSP is the one who will settle all the issues between the banks. And provide
rules and regulations for the banks to prevent the misunderstandings and problems.
Controller of Credit
⦿ BSP needs to control credit because controlling credit can control
money supply and if we control money supply there is a possibility
that the prices of goods and services will just be balanced. BSP needs to
limit the credit; they need to prevent the high percentage of credit
because if the credit is high then the money supply is high. There are 9
ways how BSP can control credit. First ids increasing or decreasing
interest rate, when the interest rate is high then the people that is
possibly borrows money will decrease. Second increasing or decreasing
the legal reserve requirement of the bank, if the reserved requirement of
the bank is high then the possibility of the bank to borrow money can
limit also. Then, by regulating requirements of stock exchange
securities, open market operations can also limit the credit because
open market operations influence the money supply. When BSP sells
securities the money supply will decrease and when they buy securities,
money supply will increase. Credits can also limit by imposing ceilings
on total amounts bank can lend, rationing central bank credit,
restricting imports, selecting projects for funding and moral suasion by
encouraging people to support and cooperate with the rules and
regulations of central bank.
⦿ Monetary Policy refers to the manipulations of
the money supply to affect the economy of
the country as a whole. It largely impact
interest rates. Increase in the money supply
lower short term interest rates, encouraging
investments and consumptions. Expansionary
monetary policy may lower interest rates and
stimulates investment and consumption in the
long run. Monetary Policy Refers to
Regulations that will affect money supply to
benefit the economy. Among the tools of
monetary policy are money supply, open
market operations, reserve requirement on
bank, discount rate, interest rate, credit
control, among others.