THE PHILIPPINE

FINANCIAL SYSTEM
 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 four
Deputy Governors, subject to the approval of the Monetary Board.
FINANCIAL SYSTEM
 FINANCIAL SYSTEM
 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 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 facilitated the exchange of information and promoted the security of
electronic transactions.
 FINANCIAL SYSTEM

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, and the rural banks.

• The government 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
 FINANCIAL SYSTEM
A universal bank is a bank that offers both banking and stockbroking services to its
clients.

A thrift bank is a financial institution that has a primary focus on taking deposits and
originating home mortgages.

A commercial bank is a type of financial institution that accepts deposits, offers

checking account services, makes business, personal and mortgage loans, and offers
basic financial products like certificates of deposit (CDs) and savings accounts to
individuals and small businesses.

Rural banks are the more popular type of banks in the rural communities. Their role is to
promote and expand the rural economy in an orderly and effective manner by providing
the people in the rural communities with basic financial services. Rural and cooperative
banks help farmers through the stages of production, from buying seedlings to
marketing of their produce. Rural banks and cooperative banks are differentiated from
each other by ownership. While rural banks are privately owned and managed,
cooperative banks are organized/owned by cooperatives or federation of cooperatives.
 FINANCIAL SYSTEM
A universal bank is a bank that offers both banking and stockbroking services to its
clients.

A thrift bank is a financial institution that has a primary focus on taking deposits and
originating home mortgages.

A commercial bank is a type of financial institution that accepts deposits, offers

checking account services, makes business, personal and mortgage loans, and offers
basic financial products like certificates of deposit (CDs) and savings accounts to
individuals and small businesses.

Rural banks are the more popular type of banks in the rural communities. Their role is to
promote and expand the rural economy in an orderly and effective manner by providing
the people in the rural communities with basic financial services. Rural and cooperative
banks help farmers through the stages of production, from buying seedlings to
marketing of their produce. Rural banks and cooperative banks are differentiated from
each other by ownership. While rural banks are privately owned and managed,
cooperative banks are organized/owned by cooperatives or federation of cooperatives.
 FINANCIAL SYSTEM
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 Philippines.
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.
 FINANCIAL SYSTEM

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 portfolios 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.
Investment banking is a specific division of banking related to the creation of capital for
other companies, governments and other entities. Investment banks underwrite new
debt and equity securities for all types of corporations, aid in the sale of securities, and
help to facilitate mergers and acquisitions, reorganizations and broker trades for both
institutions and private investors. Investment banks also provide guidance to issuers
regarding the issue and placement of stock.
 FINANCIAL SYSTEM

2. 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.

3. 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.

4. Private Insurance. Private insurance companies contribute to the country’s

socioeconomic development as well as to the insured.
 FINANCIAL SYSTEM
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 cash.

8. 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.
 FINANCIAL SYSTEM
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.
 FINANCIAL SYSTEM
Financial System

It 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.
 FINANCIAL SYSTEM
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
 FINANCIAL SYSTEM

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.
 FINANCIAL SYSTEM

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.
 MONETARY BOARD

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.
 MONETARY BOARD

Monetary Board

Chairman – Amando M. Tetangco

Members –
 Cesar V. Purisima
 Alfredo C. Antonio
 Ignacio R. Bunye
 Peter P. Favila
 Felipe M. Medalla
 Armando L. Suratos
 OBJECTIVES OF THE BSP
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 of 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.
 OBJECTIVES OF THE BSP
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.
 FUNCTIONS OF BSP
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
 FUNCTIONS OF THE MONETARY
BOARD
Bank of Issue
It 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.

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.
 FUNCTIONS OF THE MONETARY
BOARD
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.

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.
 FUNCTIONS OF THE MONETARY
BOARD
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.

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.

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. increasing or decreasing interest rate, when the
interest rate is high then the people that is possibly borrows money will
decrease.