FM4 Prefinal WR

Republic of the Philippines
North Eastern Mindanao State University

Formerly Surigao del Sur State University
Rosario, Tandag City, Surigao del Sur 8300
Telefax No. 086-214-4221
Website: www.sdssu.edu.ph
NORTH EASTERN MINDANAO STATE UNIVERSITY COLLEGE OF BUSINESS
AND MANAGEMENT
Department of Business Management and Governance
Main Campus, Tandag City, Surigao Del Sur
A Written Report on
Monetary Policy and Central Banking: Pre-Final Coverage
By
Dinoy, Jeremy Kaye J.
Gamao, Romel C.
Montero, Sherly M.
Patalud, Christian P.
Saldo, Ruel T.
Simon, Reahmae A.
Apit, Bryce Anthony L.
Submitted to
Dr. Floresito Dumagan Calub
In Partial Fulfilment of the Course FM4/Monetary Policy and Central Banking leading to the
degree Bachelor of Science in Business Administration major in Financial Management
Telefax No. 086-214-4221
August 24, 2023
TOPIC 1: FUNCTIONS OF OPERATIONS OF THE BSP
The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the
Philippines. It was established on 3 July 1993 pursuant to 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. The BSP enjoys fiscal and administrative autonomy from the National Government in
the pursuit of its mandated responsibilities.
Overview of Functions and Operations
Objectives
The BSP’s primary objective is to maintain price stability conducive to a balanced and
sustainable economic growth of the economy and employment. It shall also promote and
maintain monetary stability and the convertibility of the peso.
Responsibilities
The BSP's main responsibility is to formulate and implement policy in the areas of
money, banking and credit with the primary objective of preserving price stability.
Telefax No. 086-214-4221
1. Monetary Policy - The primary objective of BSP's monetary policy is to promote a
low and stable inflation conducive to a balanced and sustainable economic growth.
The adoption of inflation targeting framework for monetary policy in January 2002 is
aimed at achieving this objective.
2. Monetary Operations - Monetary operations refer to the buying/selling of
government securities, lending/borrowing against underlying assets as collateral,
acceptance of fixed-term deposits, foreign exchange swaps, and the use of other
monetary instruments of the Bangko Sentral aimed at influencing the underlying
demand and supply conditions for central bank money.
3. Systematic Risk Management - The promotion of "Financial Stability" is a formal
mandate that is uniquely ascribed to the Bangko Sentral ng Pilipinas (BSP). This is
provided for in the amended BSP Charter (Republic Act No. 11211) which was
signed by President Duterte in February 2019.
4. Financial Supervision - The Bangko Sentral has supervision over the operations of
banks and exercises such regulatory powers as provided in the New Central Bank Act
and other pertinent laws over the operations of finance companies and non- bank
financial institutions performing quasi- banking functions.
5. Payments and Settlements System Oversight - Payment systems are essential to the
effective functioning of financial systems worldwide. They provide the channels
through which funds are transferred among banks and other institutions to discharge
payment obligations arising from economic and financial transactions across the
Telefax No. 086-214-4221
entire economy. An efficient, secure and reliable payment system reduces the cost of
exchanging goods and services, and it is an essential tool for the effective
implementation of monetary policy, and the smooth functioning of money and capital
markets. It is this key role played by payment and settlement systems (PSS) in the
smooth functioning of an economy in general and its financial and monetary system
in particular that gives the central bank (CB) a strong incentive for ensuring that an
effective, reliable and secure payment and settlement system is in place.
6. Currency Management - The BSP has the exclusive power and authority to issue
the national currency. BSP's notes and coins are issued against, and in amounts not
exceeding, the assets of the BSP. All notes and coins issued by the BSP are fully
guaranteed by the government and are considered legal tender for all private and
public debts.
7. Inclusive Finance - In line with its strategic mandate to promote broad and
convenient access to high quality financial services and consider the interest of the
general public, the BSP undertakes various programs and policy initiatives aimed at
enhancing financial inclusion, financial education, and consumer empowerment.
8. Loans and Credit Operations - The BSP extends discounts, loans and advances to
banking institutions in order to influence the volume of credit consistent with
objective of price stability and maintenance of financial stability. It also grants loans
or advances to banking institutions in precarious financial condition or under serious
financial pressures, subject to certain conditions.

Telefax No. 086-214-4221
9. International Reserves Management - The BSP maintains a healthy level of
international reserves to provide liquidity support in times of volatility in the
exchange rate and balance of payments.
10. International Operations - The BSP's mandate on international operations under the
purview of the International Operations Department is to support the promotion and
maintenance of price stability, external sustainability, and the integrity and value of
the Philippine peso through the effective management of external debt, foreign
investments and other foreign exchange (FX) transactions.
11. International Economic Cooperation - The BSP's proactive engagement in various
regional and international fora significantly contributed to domestic policy
formulation assured partners through established crisis prevention safety nets;
broadened opportunities offered by financial integration and cooperation agreements;
and raised skills and knowledge through capacity building initiatives.
12. Economic Education - The BSP's Economic Education Portal provides the general
public a guided access on the BSP's collection of information on economic education
for them to better understand and appreciate the role of the BSP, as the country's
central bank, in the Philippine economy. As the portal strategically presents the BSP's
available learning materials, it aims to develop and strengthen the public's knowledge
on economic concepts that could eventually guide them in making sound economic
and financial decisions.

Telefax No. 086-214-4221
Core Functions of the BSP (As of March 2022)
1. Price Stability - Price Stability is achieved through the conduct of Monetary Policy.
2. Financial Stability - Managing systemic risks and promoting a secure and reliable
banking system by ensuring the safe and sound operation of banks and other BSP
Supervised Financial Institutions (BFSIs).
3. Efficient Payments & Settlements System - Providing channels through which funds
are transferred among banks and other institutions.
Other Functions of the BSP
1. Issuer of Money - Only the BSP can issue legal tender.
2. Manager of Official Reserves - The BSP manages the country’s GIR.
3. Bank of Banks/Lender of Last Resort - The BSP transacts with banks only, and gives
loans when warranted.
4. Determination of the Exchange Rate Policy - BSP is in charge of the exchange rate
policy.
5. Official Depository and Advisor of National Government - The National Government
maintains deposits with the BSP, while the BSP advises the National Government on
borrowings.
Telefax No. 086-214-4221
Responsibility and Primary Objectives of the BSP
It shall be the responsibility of the BSP:
1. To provide policy direction in the areas of money, banking, and credit;
2. To supervise the operations of the banks and to exercise such regulatory and examination
powers as provided under Republic Act No. 7653 (The New Central Bank Act), as
amended by Republic Act 11211, and other pertinent laws over the quasi-banking
operations of non-bank financial institutions; and
3. To exercise regulatory and examination powers over money service businesses, credit
granting businesses, and payment system operators.
Its primary objective is to maintain price stability conducive to a balanced and sustainable
growth of the economy and employment.
It shall also:
1. Promote and maintain monetary stability and the convertibility of the peso;
2. Promote financial stability and closely work with the National Government, including,
but not limited to, the Department of Finance, the Securities and Exchange Commission,
the Insurance Commission, and the Philippine Deposit Insurance Corporation;
3. Oversee the payments and settlement systems in the Philippines, including critical
financial market infrastructures, in order to promote sound and prudent practices
consistent with the maintenance of financial stability; and
4. Promote broad and convenient access to high quality financial services and consider the
interest of the general public.

Telefax No. 086-214-4221
TOPIC 2: REGULATIONS AND SUPERVISIONS OF FINANCIAL INSTITUTIONS
The Bangko Sentral has supervision over the operations of banks and exercises such
regulatory powers as provided in the New Central Bank Act and other pertinent laws over the
operations of finance companies and non-bank financial institutions performing quasi-banking
functions. This part of the module contains the economic and financial regulations issued by the
BSP.
Manual of Regulations
The Manual of Regulations for Banks (MORB) is the primary source of regulations
governing entities supervised by the Bangko Sentral ng Pilipinas. It provides the rules and policy
issuances that implement the broader provisions of Republic Act No. 8791, also known as the
General Banking Law of 2000, as well as other pertinent banking laws.
Regulations
1. Foreign Exchange Regulations - In line with the thrust of the Bangko Sentral ng
Pilipinas (BSP) to promote a policy environment that is market-oriented and supportive
of the Philippine economy’s sustained expansion, the BSP, through the International
Operations Department (IOD), ensures that the country’s foreign exchange (FX)
regulatory framework remains appropriate for the needs of a dynamic and expanding
economy.
Telefax No. 086-214-4221
2. Guidelines on the Establishment of Banks - the BSP, as part of its chartering process,
puts emphasis on the suitability of shareholders, adequacy of financial strength and
sufficient expertise and integrity of management, among others, in ensuring that the
proposed bank will be operated in a secure and prudent manner.

Telefax No. 086-214-4221
a. Classification of Banks
Banks in the Philippines may be classified as (1) Universal banks, (2) Commercial
banks, (3) Thrift banks, (4) Rural banks, (5) Cooperative banks, (6) Islamic banks, and
(7) Digital banks. Their respective powers and scope of authorities, as well as the
prerequisites for the grant of authorities are provided under Section 101 of the Manual of
Regulations of Banks (MORB) as amended by Bangko Sentral ng Pilipinas (BSP)
Circular No. 1134 dated 28 December 2021.
b. Establishment of Banks
Consistent with relevant laws, rules and regulations, the licensing framework of the
Bangko Sentral encompasses the assessment of the transparency of ownership and
control structure; suitability of shareholders, including the ultimate beneficial owners
(UBOs); fitness and propriety of directors and senior management; and adequacy of
capital, including sources of initial capital and ability of shareholders to provide
additional financial support, where needed. The assessment shall likewise cover the
strategic and operating plan, including an appropriate system of corporate governance,
risk management and internal controls, projected financial condition, consumer assistance
mechanism, and compliance with anti-money laundering (AML) and combating the
financing of terrorism (CFT) regulations.

Telefax No. 086-214-4221
c. Full Entry of Foreign Banks
Foreign banks intending to operate in the Philippines may apply for any of the
classification of banking license mentioned above and enter the banking system through
any one of the following modes as provided under Republic Act (R.A.) No. 10641 (An
Act Allowing the Full Entry of Foreign Banks in the Philippines):
 Mode 1: By acquiring, purchasing or owning up to 100 percent of the voting stock of
an existing domestic bank;
 Mode 2: By investing in up to 100 percent of the voting stock of a new banking
subsidiary incorporated in the Philippines; or
 Mode 3: By establishing branches with full banking authority.
Foreign bank applicants must comply with the following selection criteria pursuant to
R.A. No. 10641:
a. Geographic representation and complementation;
b. Strategic trade and investment relationships between the Philippines and the country
of incorporation of the foreign bank;
c. Demonstrated capacity, global reputation for financial innovations and stability in a
competitive environment of the applicant bank;
d. Reciprocity rights enjoyed by Philippine banks in the applicant’s home country;
e. Willingness to fully share their banking technology;

Telefax No. 086-214-4221
f. Established, reputable and financial soundness of the applicant bank; and
g. Widely-owned and publicly-listed, unless the applicant bank is owned and controlled
by the government of its country of origin.
d. Relevant Regulations and Documentary Requirements
The application for authority to establish a bank shall be submitted to
the Supervisory Policy and Research Department (SPRD) and Islamic Banking
Supervision Group (IBSG), in the case of Islamic Banks. The prospective applicant bank
may engage the Bangko Sentral in discussion before submitting the formal application. It
is the responsibility of the organizers of the proposed bank to ensure completeness of the
documentary requirements and compliance of the same in form and substance prior to
submission to the BSP.
3. Implementation of Basel Standards in the Philippines
a. Risk-Based Capital Adequacy Framework in the Philippines
b. Basel III Leverage Ratio Framework
c. Basel III Framework for Dealing with Domestic Systemically Important Banks (DSIBs)
d. Basel III Framework for Liquidity Coverage Ratio (LCR)

Telefax No. 086-214-4221
4. Compliance with PFRS/PAS
The Philippine Financial Reporting Standards (PFRS)/Philippine Accounting
Standards (PAS) are the new set of Generally Accepted Accounting Principles (GAAP)
issued by the Accounting Standards Council (ASC) to govern the preparation of financial
statements. These standards are patterned after the revised International Financial
Reporting Standards (IFRS) and International Accounting Standards (IAS) issued by the
International Accounting Standards Board (IASB).
The Bangko Sentral ng Pilipinas (BSP) pronounced its adoption of the PFRS/PAS
effective the annual financial statements beginning 1 January 2005 in its Memorandum to
All Banks and Other BSP Supervised Financial Institutions (BSFIs) dated 11 January
2005. The adoption of the new set of standards is aimed at promoting fairness,
transparency and accuracy in financial reporting.
The BSP in its Circular No. 494 dated 20 September 2005, emphasized that as a
general rule, BSFIs shall comply in all respect with the provisions of PFRS/PAS in
preparing both their audited financial statements and the financial statements for
prudential reporting.
The BSP in its Circular No. 915 dated 05 July 2016 Deviations between local and
international accounting standards only apply to the preparation of prudential reports to
the BSP and these are, as follows:

Telefax No. 086-214-4221
a. Consolidated financial statements

b. Provisioning requirement
c. Accrual of interest income on non-performing loans
5. Financial Sector Assessment Program - The International Monetary Fund (IMF) and
The World Bank jointly conducted the Financial Sector Assessment Program (FSAP)
review for the Philippines in November 2009 following the last FSAP mission conducted
in 2002. The FSAP involves an assessment of the strengths and weaknesses of the
financial sector. The results of the FSAP review are reflected in the Technical Notes
on "Focused Update of the Basel Core Principles for Effective Banking Supervision
(BCP)" and "Access to Finance", which are posted on the website of The World Bank.
6. Other Regulations
1. Registration of Pawnshops and Money Service Businesses (MSBs)
a. Pawnshops
Relevant Issuances
- BSP Circular No. 1039
- BSP Memorandum No. M-2019-019
b. Money Service Businesses (MSBs)
Relevant Issuances
Telefax No. 086-214-4221
- BSP Circular No. 1039
2. Request for Monetary Board Opinion on Domestic Government Borrowings
Prescribed Forms Relative to the Request for Monetary Board Opinion on
Domestic Government Borrowings
Request for MB opinion by local government units (LGUs)
1. LGU Request Letter (Annex 1)
2. List of Outstanding Loans (Annex 2)
3. Pro-forma Ordinance (Annex 3)
4. Pro-forma Waiver Resolution (Annex 4)
5. Post-Borrowing Report (Annex 5)
Request for MB opinion by GOCCs/WDs/SUCs
1. GOCC/WD/SUC Request Letter (Annex 1A)
2. Pro-forma Board Resolution (Annex 2A)
3. Pro-forma Corporate Secretary's Certificate (Annex 3A)
4. List of Outstanding Loans (Annex 4A)
5. Post-Borrowing Report (Annex 5A)

Telefax No. 086-214-4221
Reportorial requirements for lending institutions
1. Post-Loan Release Report - LGUs (Annex 6)
2. Post-Loan Release Report - GOCCs, WDs, SUCs (Annex 6A)
3. Pro-forma Corporate Secretary's Certificate (Annex 3A)
4. Sworn Certification on Lendings - LGUs (Annex 7)
5. Sworn Certification on Lendings - GOCCs, WDs, SUCs (Annex 7A)

Telefax No. 086-214-4221
REFERENCES:
1. Bangko Sentral ng Pilipinas Regulations. (n.d.).
https://www.bsp.gov.ph/SitePages/Regulations/RegulationsList.aspx?TabId=4
2. https://www.bsp.gov.ph/Inclusive%20Finance/EFLP/Role_Students.pdf
3. https://www.bsp.gov.ph/About%20the%20Bank/BSP%20Org%20Primer.pdf
4. Bangko Sentral ng Pilipinas About the Bank. (n.d.).
https://www.bsp.gov.ph/SitePages/AboutTheBank/AboutTheBank.aspx
5. Bangko Sentral ng Pilipinas Foreign Exchange Regulations.
(n.d.). https://www.bsp.gov.ph/SitePages/Regulations/FxRegulations.aspx
6. Regulations - Guidelines and Other Regulations. (n.d.).
https://www.bsp.gov.ph/Pages/Regulations/GuidelinesOnTheEstablishmentOfBanks/
GuidelinesOnTtheEstablishmentOfBanks.aspx
Overview.aspx
RegistrationOfPawnshopsAndMoneyServiceBusiness.aspx
9. Bangko Sentral ng Pilipinas About the Bank. (n.d.).
https://www.bsp.gov.ph/SitePages/AboutTheBank/AboutTheBank.aspx
Telefax No. 086-214-4221

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Republic of the Philippines

North Eastern Mindanao State University

NORTH EASTERN MINDANAO STATE UNIVERSITY COLLEGE OF BUSINESS

Department of Business Management and Governance

Main Campus, Tandag City, Surigao Del Sur

Monetary Policy and Central Banking: Pre-Final Coverage

Dinoy, Jeremy Kaye J.

Apit, Bryce Anthony L.

August 24, 2023

TOPIC 1: FUNCTIONS OF OPERATIONS OF THE BSP

the pursuit of its mandated responsibilities.

Overview of Functions and Operations

maintain monetary stability and the convertibility of the peso.

1. Monetary Policy - The primary objective of BSP's monetary policy is to promote a

aimed at achieving this objective.

2. Monetary Operations - Monetary operations refer to the buying/selling of

government securities, lending/borrowing against underlying assets as collateral,

monetary instruments of the Bangko Sentral aimed at influencing the underlying

demand and supply conditions for central bank money.

3. Systematic Risk Management - The promotion of "Financial Stability" is a formal

signed by President Duterte in February 2019.

financial institutions performing quasi- banking functions.

effective functioning of financial systems worldwide. They provide the channels

effective, reliable and secure payment and settlement system is in place.

enhancing financial inclusion, financial education, and consumer empowerment.

banking institutions in order to influence the volume of credit consistent with

or advances to banking institutions in precarious financial condition or under serious

financial pressures, subject to certain conditions.

9. International Reserves Management - The BSP maintains a healthy level of

international reserves to provide liquidity support in times of volatility in the

exchange rate and balance of payments.

purview of the International Operations Department is to support the promotion and

investments and other foreign exchange (FX) transactions.

11. International Economic Cooperation - The BSP's proactive engagement in various

regional and international fora significantly contributed to domestic policy

formulation assured partners through established crisis prevention safety nets;

broadened opportunities offered by financial integration and cooperation agreements;

and raised skills and knowledge through capacity building initiatives.

public a guided access on the BSP's collection of information on economic education

and financial decisions.

Core Functions of the BSP (As of March 2022)

Supervised Financial Institutions (BFSIs).

are transferred among banks and other institutions.

Other Functions of the BSP

1. Issuer of Money - Only the BSP can issue legal tender.

2. Manager of Official Reserves - The BSP manages the country’s GIR.

loans when warranted.

5. Official Depository and Advisor of National Government - The National Government

Responsibility and Primary Objectives of the BSP

It shall be the responsibility of the BSP:

1. To provide policy direction in the areas of money, banking, and credit;

operations of non-bank financial institutions; and

granting businesses, and payment system operators.

growth of the economy and employment.

the Insurance Commission, and the Philippine Deposit Insurance Corporation;

financial market infrastructures, in order to promote sound and prudent practices

consistent with the maintenance of financial stability; and

interest of the general public.

TOPIC 2: REGULATIONS AND SUPERVISIONS OF FINANCIAL INSTITUTIONS

operations of finance companies and non-bank financial institutions performing quasi-banking

General Banking Law of 2000, as well as other pertinent banking laws.

Pilipinas (BSP) to promote a policy environment that is market-oriented and supportive