THE PHILIPPNE FINANCIAL SYSTEM

THE STRUCTURE OF THE PHILIPPNE FINANCIAL SYSTEM

FNANCIAL SYSTEM – a network that generates, circulates, and controls money

and credit.

SURPLUS INCOME – refers to the excess incomes of an individual.

OBRAS PIAS – the first credit institution n the Philippines; started by Fr. Juan
Fernandez de Leon in 1754 and ended in 1820.

BANCO ESPAÑOL – Filipino de Isabella II the First Philippine Bank establish in

1851

FIRST AGRICULTURAL BANK OF THE PHILIPPINES – established n 1906 and in

1916 all of its asset and liabilities were transferred to the newly
organized PNB.

FNANCIAL MARKET – are physical locations or electronic forums that facilitate

the flow of funds among investors, businesses and governments. It
provides the mechanism for allocating financial resources of funds
from savers to borrowers.

ROLES OF THE FNANCIAL MARKET:

• Money market operation

• Expedites the transaction of financial claims

• Serves as a mean of bringing the forces of demand and supply of

financial clams

• Facilitates the flow of funds among investors, business, and

governments.

• Provides the mechanisms for allocating financial resources or funds

from savers to borrowers.

• Raises money by selling shares to investors and its existing share can
be bought or sold.

• Where lenders and their agents can meet borrowers.

• Convenes many interested sellers n one place.

• Provides the place where many commodities are traded.

• Used to match those who want capital to who have it.

• Facilitates:

• The raising capital in capital markets

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 • The transfer of risk in the derivatives market

• International trade in the currency market

1942 – PNB closes its doors because of the coming of the Japanese imperial
Forces.

Rehabilitation Finance Corporation – formed in 1946 to provide credit

facilities for the rehabilitation of agricultural, commerce and industry
reconstruction of war-damaged properties and later become the
Development Bank of the Philippines.

Offshore Banking Units – any branch, subsidiary of affiliate of Foreign Banking

Corporation that conduct banking transactions in foreign currencies.

BANGKO SENTRAL NG PILIPINAS AND ITS ROLE N THE DEPOSIT EXPANSION

AND MONEY SUPPLY

CENTRAL BANK – a financial institution vested by the State with the function
of regulating the supply, cost and use of money with a view to
promoting national and international economic stability and welfare.

DEVELOPMENT OF THE BANGKO SENTRALNG PILIPNAS

The central bank of countries within the region of Southeast Asia are
comparatively young having been established mostly only after the
end of the Second World War. The Philippines, a young nation, is not
an exception. It established its central bank only on January 3, 1949,

The concept of a central bank was developed in 1933 by Miguel

Cuaderno, the first governor of the Central Bank of the Philippines. The
Central Bank of the Philippines was patterned after similar central
banks established in Paraguay and Guatemala, two countries which,
like the Philippines have the same export economies. The Central Bank
of the Philippines came to existence as a result of the approval by the
former President Elpdio Qurino pf Republic Act No. 265, otherwise
known as the “Central Bank Act” on June 15, 1948. However, actual
operations did not commence until January 3, 1949 when the bank
open its doors for business in the old Intendencia Building located at
Intramuros, Manila.

With the accumulation of losses incurred by the Central Bank, P317B

as of December 1992, there emerged the CMA bill to transform the
Central Bank into Central Monetary Authority. This CMA bill is also in
response to a call of the International monetary Bank and World Bank
to ease the foreign debt burden and strengthen the credit standing of
the Philippines. And then when the CMA law also known as “The New
Central Bank Act” took effect on June 14, 1993 there is established an
independent Central Monetary Authority which is known as the
“Bangko Sentral ng PilipInas” and has a capital of P50 billion.

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THE FUNCTION OF THE BANGKO SENTRAL NG PILIPNAS

• Liquidity Management

• Currency Issue

• Lender of Last Resort

• Financial Supervision

• Management of Foreign Currency Reserves

• Determination of Exchange Rate Policy

• Other Activities (Functions as the banker, financial advisor and official

depository of the Government)

OBJECTIVES OF BSP

• To maintain price stability conducive to a balanced and sustainable

growth of the economy

• To promote and maintain monetary stability and convertibility of the

Philippine peso

THE BSP ON MONEY SUPPLY AND DEPOSIT EXPANSION

MONEY SUPPLY – the sum of notes and coins in the circulation and peso
demand depositions subject to withdrawal by check

DEPOSIT EXPANSION – the change in money supply as a result of an increase

in bank reserve

MONETARY BOARD – policy making body of the BSP; exercise the powers and
functions of the BSP

THE MAIN FUNCTONS OF THE MONETARY BOARD

• Issues rules and regulations it considers necessary for the effective

discharge of the responsibilities and exercise the powers vested upon
it.

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 • Direct the management, operations and administration of the BSP

• Establish a human resource management system

• Adopt an annual budget for and authorize such expenditures by

Bangko Sentral

• Indemnify its members and other officials of Bangko Sentral

THE BSP MONETARY BOARD

Chairman: Armando M. Tetangco, Jr.

Members: Juanito D. Amatong

Alfredo C. Antonio

Raul A. Boncan

Ignacio R. Bunye

Peter Favila

Nelly F. Villafuerte

MONETARY POLICY AND ITS OBJECTIVES

MONETARY POLICY – the management of the expansion and contraction of

the volume of money in circulation for the explicit purpose for attaining
a specific objective.

CENTRAL BANK OF THE PHILIPPINES – responsible for executing the monetary

policy; gives primary and immediate importance to the maintenance of
monetary stability

CONFIDENCE OF MONEY – basis for all economic activities in a society based

upon credit

ADVANTAGES

• Impersonal

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 • Flexible in operation

• Operates for the most part free from the weight of political pressures

DISADVANTAGES

• Attempts to change available money supply through the banking

system

• Results to high-priced goods and services

QUANTITATIVE AND SELECTIVE INSTRUMENTS

• QUANTITATIVE (Open Market Operations) – used to regulate total

quality of money available for all purposes

• SELECTIVE – employed to limit the amount of money available for

certain specific purposes

RELATION OF INTEREST RATES TO SAVINGS AND INVESTMENT

INVESTMENT – induce a significant increase when the depressions of driving

interest rates down

SAVINGS – it is contended when there is an increase in interest rate

TIGHT MONEY POLICY AND EASY MONEY POLICY

TIGHT MONEY SUPPLY – contraction of money supply

EASY MONEY POLICY – expansion of money supply

FINANCIAL STABILITY ESSUES AND CHALLENGES

KEY FACTORS THAT AFFECTS THE FINANCIAL SYSTEM:

• Financial Resources

• Banking System

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 • Non-Bank Financial institution

ISSUES ARISNG

• Financial Stability

• Integrated Regulator (s)

• Financial Transparency

• Deregulation of Financial Market

• Rapid Financial Innovation

• Space Age Technology]

CHALLENGES ENCOUNTERED

• Improving Asset Quality

• Managing Risk Exposure

• Developing the Domestic Capital Market

The Philippine Financial System Structure

Financial Institutions
Financial Institutions are the intermediaries that mobilize savings and facilitate the
allocations of funds in an efficient manner.
• Central Bank
TheBANGKO 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 Philippines Constitution and the New Central Bank Act of

1993.The BSP took over from the 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.

• Banking Institutions

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 Private Banking

• Commercial banks

An institution which accepts deposits, makes business loans, and offers related services.

Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and

time deposit. These institutions are run to make a profit and owned by a group of

individuals, yet some may be members of the Federal Reserve System. While commercial

banks offer services to individuals, they are primarily concerned with receiving deposits and

lending to businesses.

An institution which accepts deposits, makes business loans, and offers related services.

Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and

time deposit. These institutions are run to make a profit and owned by a group of

individuals, yet some may be members of the Federal Reserve System. While commercial

banks offer services to individuals, they are primarily concerned with receiving deposits and

lending to businesses.

• Universal Banks

Refers to those banks that offer a wide range of financial services, beyond

commercial banking and investment banking, insurance etc, Universal banking is a

combination of commercial banking, investment banking and various other activities

including insurance.

• Ordinary Commercial Banks

Thrift Banks

Mobilization of small savings, provide loans generally longer and easier terms.

Rural Banks

Banks entrenched to ensure sufficient institutional credit for agriculture and other rural

sectors. Mobilize financial resources from rural / semi-urban areas, grant loans small

farmers.

Cooperative Banks

is a business organization owned and operated by a group of individuals for their

mutual benefit. Cooperatives are defined by the International Co-operative
Alliance's Statement on the Co-operative Identity as autonomous associations of
persons united voluntarily to meet their common economic, social, and cultural
needs and aspirations through jointly owned and democratically controlled
enterprises. A cooperative may also be defined as a business owned and controlled

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equally by the people who use its services or by the people who work there.
Cooperative enterprises are the focus of study in the field of cooperative
economics.

Microfinance banks
Is the provision of financial services to low-income clients, including consumers and

the self-employed, who traditionally lack access to banking and related services.

More broadly, it is a movement whose object is "a world in which as many poor and

near-poor households as

possible have permanent access to an appropriate range of high quality financial

services, including not just credit but also savings, insurance, and fund

transfers. Those who promote microfinance generally believe that such access will

help poor people out of poverty.