MAYBE youve wondered when the business of banking first came about in

the Philippines. Or maybe, youre curious if banks existed during the Spanish
and American colonial periods, and how they fared during the Japanese
occupation.

As always, history provides the best answers to these questions. The Bangko
Sentral ng Pilipinas (BSP) has published a very informative book, The
General Banking Law Annotated: Book 2, which details the history of
banking in the Philippines.

For the next four weeks, I will share with you this special history as written in
the BSP book.

According to The General Banking Law Annotated: Book 2, the first

organized credit institutions, known as Obras Pias, were established in the
Philippines during the 16th century Spanish colonial era.

The capital of Obras Pias came from pious Catholics and their profits were
intended to maintain hospitals, orphanages and other charitable endeavors.

The Obras Pias served as commercial banks and marine insurance

companies, with the bulk of their funds invested in the galleon trade.

In 1869, the opening of the Suez Canal facilitated trade between the
Philippines and Europe. The Philippines then attracted British capital, and in
the years that followed, the Chartered Bank of India, Australia and China
(now known as the Standard Chartered Bank) and the Hong Kong and
Shanghai Banking Corporation (HSBC), both British-owned banks, opened
their respective branches in Manila.

In 1883, Madrid-based Banco Peninsular Ultamarino also established a

branch in the country. However the Spanish bank ceased operations after
four years.

By the end of the Spanish regime, the banks in existence were: El Banco
Espaol Filipino de Isabel (now the Bank of Philippine Islands or BPI), which
was given the sole mandate under a Spanish Royal Decree of 1854 to issue
banknotes called Pesos Fuertes; the Chartered Bank of India, a branch of the
HSBC; the Monte de Piedad; and the Banco Peninsular Ultamarino de Madrid.

It should be noted that under the Spanish regime, there were no significant
Filipino interests, initiatives, or capital in banking.

During the American colonial period, banks from the United States of
America started to establish local branches that would cater to growing
American economic interests and capital inflow into the country.
The American Bank was first to open a branch in 1901. However, it was
placed under receivership by the Insular Treasurer for making doubtful loans
after only four years of operation.

At the turn of the 20th century, the Americans established the Guaranty
Trust Corporation (GTC) and International Banking Corporation (IBC). The
existence of GTC was short-lived, while IBC was eventually taken over by the
National City Bank of New York (now known as Citibank, N.A.).

Other foreign banks subsequently made their presence in the Philippines. In

1918, the Manila branch of the Yokohama Specie Bank was given a license to
do business in the Philippines.

From 1919 to 1930, foreign banks Asia Banking Corporation, the Chinese-
American Bank of Commerce of Peking, China, and the National City Bank of
New York opened branches in the Philippines.

During the American colonial era, the Philippine banking system was largely
dominated by foreign bank branches whose capitals were devoted to
financing commerce and trade, rather than the development of the countrys
natural resources.

It should also be mentioned that the Bank of the Philippine Islands, which
then possessed the privilege of issuing currency notes, was the only
significant bank controlled by local interests.

To break the foreign banking monopoly and remedy the lack of credit
facilities, the Philippine National Bank (PNB) was established in 1916 with the
Philippine Government as the majority stockholder.

The PNB was meant to function as a government enterprise that would widen
the variety of banking services beyond trade finance in exportation and
importation, money changing of foreign currency, and fund transfers, all of
which, while useful in the short term, failed to mobilize capital in the
development of natural resources.

Its charter at that time empowered the PNB to issue bank notes and act as a
depositary of government funds.