BANKING AND

FINANCIAL
INSTITUTIONS
CHAPTER 1. BANKS AND BANKING
PERSPECTIVE
CHAPTER OBJECTIVES:
•Historical perspective
•Definition of Banks
•Nature of Banks
•Type of Banks
HISTORICAL PERSPECTIVE
•The development of banking system and
early banking practices started in the
temples of Babylon as far back as 2,000
B.C.
BABYLON
•The most famous city from ancient
Mesopotamia whose ruins lie in modern –
day Iraq 59 miles southwest of Baghdad.
•The name is derived from bav-il or bav-ilim
which meant ‘Gate of god’ or ‘Gate of the
gods’.
•Credit transactions were engaged in as
evidenced by the tablets found in the ruins
of the ancient past.
•The payment of interest on loans and
charging of fees for safekeeping money
were also evident during those times.
•Early versions of bank drafts and checks
were in wide use in Assyria sometime in 8 th

century B.C.
•Today, banks seem to shy off its humble
beginnings for many–a–splendored
functions of receiving deposits and lending
out funds.
PHILIPPINES BANKING
HISTORY
•Our own past has been so intertwined
with the colonization of our country by a
conglomeration of races.
•From Pre–Spanish times to the present.
•So much that we could conveniently divide
the periods as that of the Spanish era, the
American era, the Japanese era, and the
Post – war era.
THE SPANISH ERA
•It was in the 16th century that the first
financial institution, Obras Pias, was
organized in the Philippines to take care of
the flourishing galleon trade existing
between the country and Mexico.
•Its capital came from the pious Catholics
and its funds were loaned out with
interest.
•The Obras Pias ceased to operate in 1820
and was totally non – existent by 1851.
•Cognizant of the improving progress, the
Spanish Government granted a charter to
establish the 1st commercial bank in 1828.
•However, it was not until 1851 that the
bank named Banco Español – Filipino started
operations.
•Banco Español – Filipino performed
general banking functions and partly
financed foreign trade.
•Today, the bank still exists bearing the
name Bank of the Philippine Islands (BPI).
SUPERVISION & REGULATION
•Supervision and regulation were negligible.
•There were only the Spanish Civil Code and
the Code of Commerce regulating banking
business.
•Filipino interest in the banking business
then was almost nil.
THE AMERICAN ERA
•Banks operating during the Spanish regime
continued to do business and were soon
joined by the branches of the International
Banking Corporation and the Guaranty Trust
Company.
•In 1906, the Postal Savings Bank was
created as part and parcel of the Bureau of
Posts to inculcate the habit of thrift in the
minds of the people, particularly those in
the low income group.
•Foreign banks dominated the Philippines
scene until 1916 when the Philippine
National Bank was granted its charter.
•It was capitalized at ₱20,000,000.00, which
was entirely subscribed by the government
and little of private citizen.
•It engaged in extending short-term notes
to merchants and long-term loans to
agriculture and industry.
•It was re-organized in 1934 and reduced
its capital to ₱10,000,000.00
•After World War I, more banks were
established.
•Yokohama Specie Bank (1919)
•China Banking Corporation (1920)
•Peoples Bank and Trust Company (1926)
•Mercantile Bank of China (1926)
•Nederlandsch Indische Handselbank (1937)
•Philippine Bank of Commerce (1938)
•Bank of Taiwan (1938)
SUPERVISION & REGULATION
•The First Philippine Commission passed
Act 52 in 1900 which provided for the
examination and inspection of banks as an
initial step towards safeguarding the
interests of depositors and stockholders
under the Bureau of Treasury.
•The Bureau of Banking was created in 1929
to supervise banks.
•The establishment of the Manila Clearing
house in 1930 marked a milestone in the
banking history.
THE JAPANESE ERA
•During the Japanese occupation, only
Filipino and Japanese – owned banks were
given permission to operate.
•Nampo Kaihatsu Ginko (1942) acted as the
fiscal agent of the Japanese government in
the Philippines.
•It was some sort of a central bank, which
engaged in the issuance of military notes
and took custody of clearing interbank
balances.
POSTWAR ERA
•Banks operating in the Japanese
occupation were unable to reopen for
business.
•They could not meet their obligations in
Philippine currency because their capital
consist of greater military notes.
•Executive Order 96 invalidated all Japanese
occupation deposits.
•Executive Order 48 paved the way for the
reopening of the pre – war banks.
•Commonwealth Act 725, in 1945, enabled
domestic banks to reopen.
•Republic Act 85 created the Rehabilitation
Finance Corporation (1947) to rehabilitate
the war – ravaged country.
•1948 – General Banking Act was passed
into law.
•1949 – Republic Act 265, otherwise known
as Central Bank Act, was passed.
PHILIPPINE BANKING TODAY
•Republic Act No. 7653, or the New
Central Bank Act of 1993, governs
Philippine Banking.
•It provides for the establishment of an
independent monetary authority to be
known as the Bangko Sentral ng Pilipinas.
•It is in charge with the maintenance of
price stability, as its primary objective.
•It has supervision over the operation of
banks and has powers over the operations
of finance companies and non – bank
financial institutions.
PERSPECTIVE ON BANK OR
BANKING
• What is a bank?
• In Philippine context, the meaning of bank is
emphasized in Section 3 of the new General
Banking Law, to wit:
• “Banks shall refer to entities engaged in the
lending of funds obtained in the form of deposits”.
NATURE OF BANKING
BUSINESS
•“A bank makes money out of other
people’s money”
•Viewed in different light, bank is said to
“Trade on the equity.”
TYPES OF BANKS
•There are several ways of classifying banks.
•It may be classified according to ownership,
to structure, to function, and to management.
AS TO OWNERSHIP
•Privately Owned. A bank is said to privately
owned when it is organized and capitalized
by private citizen for their profit.
•Publicly Owned. Publicly owned bank is
organized by the state and sometimes has
a minimum of private ownership.
PUBLICLY OWNED BANKS
1. Land Bank of the Philippines
2. Development Bank of the Philippines
3. Al-Amanah Islamic Investment Bank of
the Philippines
4. Overseas Filipino Bank, A savings bank of
Land Bank
AS TO INCORPORATION
•Domestic. When it is incorporated under
the laws of the Philippines, it is a domestic
bank. Majority of stocks are owned by
Filipinos.
•Foreign. When the bank is incorporated
under the laws of another country, though
it is operating in the Philippines.
FOREIGN BANKS IN PH
1. Bank of Singapore Ltd. Representative
Office
2. Barclays Bank PLC Representative
3. DBS Bank Ltd. Representative Office
4. Japan Bank for International
Cooperation Representative Office
5. Rothschild (Singapore) Ltd.
Representative Office
6. The Bank of New York Mellon
Representative Office
7. The Export-Import Bank of Korea
(Korea Eximbank) Representative Office
8. Union Bank of Switzerland Aktiengesellschaft
(AG or corporation limited by share
ownership) Representative Office
9. Wells Fargo Bank, N.A. Representative
Office
10. Korea Development Bank Representative
Office
AS TO STRUCTURE
•Stock Corporation. Banks are stock
corporation when they sell shares of stock
to the general public to raise capital.
•Non – Stock Corporation. Means that the
organization is on a membership basis. The
purpose of such organizations is for mutual
benefits and service rather than profit.
STOCK CORPORATION
1. Asia United Bank
2. BDO Unibank
3. Bank of PH Islands
4. China Bank
5. City Estate Bank
6. East West Bank
7. Metro Bank
8. PB Bank
9. Philippine National Bank
10. Phil Trust Bank
11. RCBC
12. Security Bank
13. Union Bank
AS TO FUNCTION
•Commercial Bank. These banks receives
demand deposits and give out short-term
loans. Nowadays, it does not only
concentrate on these functions.
•Trust Company. Is an institution which deals
in fiduciary activities (guardian of minors,
executor of last wills and testaments)
•Savings Bank. One which primarily receives
for safekeeping funds from persons who
have no immediate need for cash.
•Rural Bank. Organized primarily to cater
the needs of small farmers, small
businesses, cooperative associations, etc.
•Development Bank. Takes care of giving
loans to be used for developing the
economy and may therefore engage in
medium and long-term lending.
•Cooperative Bank. Organized to furnish the
credit needs of duly registered and
operating cooperative associations.
•Investment Bank. One which assists
government bodies and newly organized
corporations to raise funds for capital
through the sale of stocks and bonds.
•Central Bank. It is the bank of banks, as it
does not deal directly with the public. It is
usually the supervisory and regulatory
agency.
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AS TO MANAGEMENT
•Unit Bank. It is one where ownership is
concentrated on one corporation which
does banking business independent of
others.
•Group Banking. When a majority portion of
stocks of two or more banks are held up
by a holding company.
•Branch Banking. Is one where there is a
head office and two or more branches.
•Chain Banking. When one or more persons
control the activities of banks, it is known
as chain banking.
END…