Bank and Banking

Perspectives
Angelica Marie A. Dalisay
FM 204
Banking and Financial Institutions
 Historical Perspective Worldwide

Started in the In the 4th By the 2nd Earlier versions “Rule of the The sedentary The greatest
temples of century B.C., century A.D., of BANK day” that men bankers of moneylender
transactions DRAFTS and handling these Mediterranean
BABYLON as temples, were registered CHECKS were cities,
s of the 16th
far back as public bodies, transactions of century were
by public in wide use in particularly
2,000 B.C. and private lending and the Fugger
notaries. During Assyria Venice, Genoa,
safekeeping
firms were these times, sometime during and Barcelona family.
payment of the 8th century money gave impetus to
dealing in the possessed a
receipt of interest on loans B.C. the
and charging of high degree of COMMERCIAL
DEPOSITS The credit of
fees for originating the
INTEGRITY BANKING
and safekeeping and SYSTEM of
OVERDRAFT
LOANING of money were perhaps goes to BUSINESS today.
funds also evident the VENETIAN ACUMEN
BANKERS
 Philippine Banking History
Spanish Era
Obras Pias
The first financial institution
organized in the Philippines
during 16th century to take care
of the flourishing galleon trade.
Its capital came from the pious
Catholics and its funds were
loaned out with interest. It
ceased to operate in 1820 and
was totally inexistent in 1851.
Banco Español-Filipino
It started its operations on 1851.
It performed general banking
operations and partly financed
foreign trade. It was also given
the privilege of note issue on 17
October 1854, Today, the bank
still exists bearing the name
Bank of the Philippine Islands
(Banco delas Islas Filipinas).
1869
The Suez Canal opened and led
to the accessibility of the
European markets.
1873
The Chartered Bank of India,
Australia, and China established
branches in the country.
1875
Two more exchange banks
namely, the Hongkong and
Shanghai Banking Corporation,
were established.
 Philippine Banking History
Spanish Era

Monte de Piedad
It is a savings bank that
commenced operations in 1882. By the end of the Spanish Supervision and regulation were
regime, there were FOUR (4) negligible. There were only the
Banco Peninsular banks in operation: Spanish Civil Code and the
Ultramarino of Madrid THREE (3) Commercial banks Code of Commerce regulating
It was established in the and ONE (1) savings bank. the banking business.
Philippines in 1853 but stopped
its operations four years later.
 Philippine Banking History
American Era
Postal Savings Bank
In 1906, this was created as part
and parcel of the Bureau of
Posts to inculcate the habit of
THRIFT in the minds of people,
particularly those in the low
income groups
Philippine National
Bank
Before the granting of its charter in
1916, foreign banks dominated the
Philippines. This was capitalized
at P20,000,000. It was granted
privilege to issue its own notes
and was engaged in extending
short-term notes to merchants and
long-term loans to agriculture and
industry. However, it was re-
organized in 1934 and had its
capital reduced to P10,000,000.
After WWI, more banks were
established:
1919 – Yokohama Specie Bank
1920 – China Banking
Corporation
1926 – Peoples Bank and Trust
Company; Mercantile Bank of
China
1937 – Nederlandsch Indische
Handelsbank
 Philippine Banking History
American Era
Philippine Bank of
Commerce
The first private bank was
established in 1938 with genuine
Filipino capital.
1939
Three banks commenced
commercial banking operations:
• Bank of the Commonwealth
• Philippine Bank of
Communications
• Agricultural-Industrial Bank
1940s
At this time, there were all in all
17 BANKS with the same
number if Manila offices, 22
provincial branches, 54
provincial agencies, and 1,000
sub-agencies
 Philippine Banking History
American Era
Act 52
This was passed by the
First Philippine
Commission. It requires
the examination and
inspection of banks as an
initial step toward the
objective of safeguarding
the interests of depositors
and stockholders.
Manila Clearing House
Bureau of Banking
The year 1930 marked a
It was created in 1929 and milestone in banking
has the power of history with the
supervision over banks establishment of this
through the Bank clearing house, which
Commissioner. was organized by
domestic banks.
 Philippine Banking History
Japanese Era

Southern Development
World War II
Bank
During the Japanese
The Philippines occupation, only Filipino
(Nampo Kaihatsu Ginko)
experienced and Japanese-owned
opened a branch in
hyperinflation during banks were given
Manila in 1942 and acted
these times and the permission to operate.
as fiscal agent of the
historical “Mickey Mouse
Japanese government in
Money” came to light.
the Philippines.
 Philippine Banking History
Postwar Era
Rehabilitation Finance
Commonwealth Act 725 Corporation
Executive Order 96
Invalidated all Japanese Was created by virtue of
Approved in 1945, enabled
occupation deposits Republic Act 85 on 2 January
domestic banks to reopen in
March 1946. It also provided 1947. It took over the
Executive Order 48 functions and what was left
a sum of P 10,000,000 to
Paved the way for the of the Agricultural Industrial
rehabilitate the domestic
reopening of the pre-war Bank. Its main objective was
banks through government
banks the rehabilitation of the war-
subscription of preferred
shares. ravaged country, as well as
to step up economic
development.
 Philippine Banking History
Postwar Era
General Banking Act
In 1948, it was passed into
law. It provided the
definitive rules of conduct
for all banking institutions
as to organization
Republic Act No. 265 /
Central Bank Act
Was passed in 1949 creating
the Central Bank of the
Philippines.
The two problems justifying the
establishment of the Central Bank
during the Philippine postwar
period:
1. Adjustment of the transition
from a colonial raw material
producing economy to that of
an agro-industrial economy.
2. How to gear the resources of
the banking system to the
major economic objective;
there was no centralization of
the banking business as the
banks were independent of
one another.
Throughout the years after its
establishment, there were
presidential decrees issued to
amend RA No. 265:
• PD No. 72 (1972) – adopted
recommendations from Joint
IMF-CB banking Survey
Commission
• PD No. 1801 – designated the
Central Bank of the
Philippines as the central
monetary authority
Philippine Banking Today
Republic Act No. 7653
 New Central Bank Act of 1993; Provides for the establishment of an independent monetary
authority to be known as the Bangko Sentral ng Pilipinas (BSP), with the maintenance of
price stability explicitly stated as its primary objective, and giving it much needed fiscal and
administrative autonomy, which the Central bank did not have.

 As of September 14, 2020, there are BSP supervised/regulated banks, non-banks and offshore
banks:
 46 Universal and Commercial Banks
 48 Thrift Banks
 443 Rural and Cooperative Banks
 7 Non-banks with Quasi-banking functions
 28 Non-banks without Quasi-banking functions
 1 Offshore Bank
Philippine Banking Today
E-Banking
 The provision of banking services (deposit taking, payments, mortgages, and other financial services sold
by banks) over the internet or other electronic networks; regulated by four main BSP prescribed prudential
guidelines, namely: Circular No. 240, Memorandum to All Banks, Circular Letter and Circular No. 269

E-Money
 Instruments or devices used to provide e-banking services. It can be divided into three groups
1. Access devices – allow people to withdraw or deposit cash, transfer funds, and pay bills from their bank
accounts without physically going to the banks or writing a check
2. Card-based products – These are prepaid cards in which funds are stored in electronic form on a
computer chip (or integrated circuit) embedded in the cards; also called Stored-Value Card (SVC)
products
3. Prepaid software products or network money – Involve funds that are stored in electronic form (on
devices like the hard disk of a computer) and are transferred over communications networks (such as the
Internet) among participants in the network.
Republic Act No. 8791
 Known as the General Banking Law of 2000
 Provides the regulation of the organization and operations of banks, quasi-banks, and
trust entities. Among the important features of the law are the following:
1. Greater foreign participation in the system, thus indicating competition. Foreign banks are allowed to
acquire up to 100% of the voting stock of an existing bank within seven years after the effectivity of the Act.
2. Three-year moratorium on the establishment of commercial banks to hasten the ongoing consolidation
process in the banking system.
3. Stricter rules governing bank exposure to directors, officers, stockholders, and related interests (DOSRI).
The definition of DOSRI is expanded to include investments of the bank in enterprises owned or controlled
by said DOSRI. The Monetary Board is also given the power to define the term “related interests”.
4. Grant of authority to the Monetary Board to adopt internationally accepted standards relating to risk-based
capital adequacy
5. Application of fit-proper rule test for a director or officer to hold said position in a bank. In this regard, the
Monetary Board is empowered to disqualify, remove, or suspend a director or officer for acts or omissions
that render him unfit for the position.
6. Grant authority to the BSP to regulate electronic banking to ensure adequate protection of banks’ depositors
and other clients
Republic Act No. 9160
 Known as the Anti-Money Laundering Act of 2001
 Was passed into law on 29 September 2001; amended by RA 9194, RA 10167
 There are five salient features of the Anti-Money Laundering Law:
1. Criminalizing, meaning, that money laundering is now a crime in the Philippines
2. Establishment of a system of covered transaction reporting. RA 9160 identifies the forms of
business institutions or “covered institutions” which are required to submit reports about
suspicious or “covered transactions” to authorized persons
3. Creation of an Anti-Money Laundering Council that will administer the implementation of
RA 9160
4. Amendment of the Bank Secrecy Law which has been blamed for making our country a
potential haven for money laundering. The RA 9160 is to ensure that the country is not
used for money laundering. However, it continues to protect and preserve the integrity
and confidentiality of bank accounts
5. The institution of procedures and arrangements that facilitate cooperation between the
Philippines and foreign governments in the investigation, tracking, and prosecution of
money launderers.
http://www.amlc.gov.ph/
Circular No. 237
 Was approved on 19 April 2000 by the Monetary Board
 Consolidates and clarifies all existing rules and regulations on mergers and
consolidations of banks and other financial institutions as well as improving the
incentive package.
 Done to foster banks, bring about more and better financial services at lower cost,
and promote stability and efficiency in the Philippine banking sector
 MERGER – absorption of one or more corporations by another existing corporation which
retains its identity and takes over the rights, privileges, franchises, and properties, and
assumes all the liabilities and obligations of the absorbed corporation(s) in the same
manner as if it has itself incurred such liabilities or obligations. The absorbing corporation
continues its existence while the life or lives of the other corporation(s) is/are terminated.
 CONSOLIDATION – union of two or more corporations into a single new corporation
(consolidated corporations). All the constituent corporations thereby cease to exist as
separate entities. The consolidated corporation shall thereupon and thereafter possess all
the liabilities and obligations of each of the constituent corporations in the same manner as
if it had itself incurred such liabilities or obligations.
http://www.amlc.gov.ph/
Deregulation/Provisions in the General Banking Law
 Sec. 11. Foreign Stock Holding – Foreign individuals and non-bank corporations may own
or control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall
apply to Filipinos and domestic non-bank corporations.

The percentage of foreign-owned voting stocks in a bank shall be determined by the

citizenship of the individual stockholders in that bank. The citizenship of the corporation
which is a stockholder in a bank shall follow the citizenship of the controlling stockholders
of the corporation, irrespective of the place of incorporation.

 Sec. 72. Transacting Business in the Philippines. – The entry of foreign banks in the
Philippines through the establishment of branches shall be governed by the provisions of
the Foreign Banks Liberalization Act. The conduct of offshore banking business in the
Philippines shall be governed by the provisions of the Presidential Decree No. 1034,
otherwise known as the "Offshore Banking System Decree."
Deregulation/Provisions in the General Banking Law
 Sec. 73. Acquisition of Voting Stock in a Domestic Bank. – Within seven (7) years from the effectivity
of this act and subject to guidelines issued pursuant to the Foreign Banks Liberalization Act, the
Monetary Board may authorize a foreign bank to acquire up to one hundred percent (100%) of the
voting stock of only one (1) bank organized under the laws of the Republic of the Philippines.
Within the same period, the Monetary Board may authorize any foreign bank, which prior to the
effectivity of this Act availed itself of the privilege to acquire up to sixty percent (60%) of the voting
stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act, to further
acquire voting shares such bank to the extent necessary for it to own one hundred percent (100%) of
the voting stock thereof.
In the exercise of the authority, the Monetary Board shall adopt measures as may be necessary to
ensure that at all times the control of seventy percent (70%) of the resources or assets of the entire
banking system is held by banks which are at least majority-owned by Filipinos.
Any right, privilege or incentive granted to a foreign bank under this Section shall be equally
enjoyed by and extended under the same conditions to banks organized under the laws of the
Republic of the Philippines. (Secs. 2 and 3, RA 7721)
 Sec. 74. Local Branches of Foreign Banks. – In the case of a foreign bank which has more than one
(1) branch in the Philippines, all such branches shall be treated as one (1) unit for the purpose of this
Act, and all references to the Philippine branches of foreign banks shall be held to refer to such
units.
Perspective on Bank or Banking
In the Philippine context, the meaning of bank is emphasized in Section 3 of the
New General Banking Law, to wit:
“Banks shall refer to entities in the lending of funds obtained in the form of deposits.”

With this definition, it is clear that the creation of deposits implies the other function
– that of loaning out of funds
 Nature of Banking Business
“A bank makes money out of other people’s money.”
“A bank trades on equity.”

Remember that the banking business involves CREDIT. Trust and confidence,
futurity and risk are the basic elements of credit transactions.

Depositor Loan Interest

Principles of Banking
1. Partial Reserve System – certain amount deposited will support several times as
much in credit.
2. A greater portion of deposits in commercial banks arises out of the proceeds of
loans
Types of Banks
As to ownership:
1. Privately owned – when it is organized and capitalized by private citizens for
their profit; called “closed corporations” since the ownership resides in one
family (However, due to the nature of the banking business, it is considered a
quasi-public corporation)
2. Publicly owned – organized by the state and sometimes has a minimum of
private ownership. The charter is granted by the enactment of a special law to
govern its operations.
Types of Banks
As to place of incorporation:
1. Domestic – incorporated under the laws of the Philippines; follows that majority
of the stocks are owned by Filipinos in conformity with the Philippine
Corporation Code
2. Foreign – incorporated under the laws of another country, although the bank
might be doing business in the Philippines; its organization follows the pattern
of incorporation in the country to which the owners owe allegiance without
prejudice to the supervision and control imposed by the Philippine laws on
banks and financial institutions, and others which have anything to do with
corporate entities.
Types of Banks
As to structure:
1. Stock Corporation – when the corporation sell shares of stock to the general
public to raise capital. The shares sold must have a par value. The purpose of
organizing is for profit.
2. Non-stock Corporation – the organization is on a membership basis. The
purpose of such organization is for mutual benefits and service rather than for
profit.
Types of Banks
As to function and line of development:
1. Commercial Banks – receives demand deposits and gives out short-term loans;
also attends to numerous services that is possible due to the process of
departmentalization
2. Trust Companies – deals in fiduciary activities; was originally a legal function
and was handled by a legal officer or lawyer
3. Savings Bank – primarily receives for safekeeping funds from persons who have
no immediate need for cash and invests these funds in long-term investments
4. Rural Bank – primarily caters to the needs of small farmers, small businesses,
small cottage industries, and cooperative associations; operation and organization
is governed by Republic Act 720
5. Development Bank – takes care of giving loans to be used for developing the
economy and may therefore engage in medium and long-term lending;
organization and operation of private development banks shall be under the
control and supervision of the Development Bank of the Philippines
Types of Banks
As to function and line of development:
6. Cooperative Bank – organized to furnish the credit needs of duly registered and
operating cooperative associations of different kinds; example: Philippine
National Cooperative Bank
7. Investment Bank – assists government bodies and newly organized corporations
to raise funds for capital through the sale of stocks and bonds; handles a
business of high risk and therefore necessitates a large amount capital;
underwrites the sale of securities and also conducts an economic survey to
determine the market for securities; example: Private Development Corporation
of the Philippines
8. Central Bank – the bank of banks; does not directly deal with the public; usually
the supervisory and regulatory agency, which makes all banks “tow the line”.
The Bangko Sentral ng Pilipinas is the Philippines’ central that is rather unique
since it is purely government-owned and operated.
Types of Banks
As to management:
1. Unit Bank – ownership is concentrated on one corporation which does banking
business independent of others; has one place of business and its own board of
directors
2. Group banking – when a majority portion of the stocks of two or more banks are
held by a holding company; preventive measures had to be taken to discourage
group banking, if not to entirely discard it, because of the element of monopoly.
3. Branch banking – where there is a head office and two or more branches; the
single corporate entity “fans out” its banking services to different strategic
locations
4. Chain banking – when one or more persons control the activities of the banks;
has not gained adherents due to the difficulties in operating the same on
economical basis and also because of its instability or lack of continuance in
existence.
Economic Significance of Banks
 Banks facilitate the dealings for credit transactions
 If positively managed, it can contribute tremendously to the economic well-being
along the commercial, industrial, and even agricultural endeavors. But if
negatively, it can create havoc on the economy.
 They can contribute to wise decisions and proper incentives in business and trade.
 Without banks, foreign trade would stagnate or perhaps not flow smoothly.
Why the State Supervises Banks
1. The banks are entrusted with other people’s money.
2. The state wants to assure that the banks will perform their functions in the best
interest of their clients through the honest and efficient conduct of their
functions.
3. The banks may either abuse their power or use them prudently.
4. The banks, furthermore, are quasi-public corporations and as in all other
corporations of this calling, the state must exert its restraining influence to
safeguard the welfare of its constituents.
Thank you!
Angelica Marie A. Dalisay
angelicamarie.dalisay@g.batstate-u.edu.ph