Chapter Two

PHILIPPINE FINANCIAL SYSTEM

[BSP] has the
responsibility over the
financial system, credit
system and the
monetary system in the
Philippines

Short video
presentation
 Philippine Financial System

● Requirements of an effective financial system

♦ The financial system must provide an efficient medium
for exchanging goods and services
♦ The financial system must create capital on a large
scale enough to meet the demands of the nation’s
economy
♦ The financial system must provide markets and
procedures for the transfer of claims to wealth and for
the conversion of claims to cash

Copyright© 2006 South-Western/Thomson Learning. All rights reserved.

 Philippine Financial System

Financial Intermediation
a financial activity that distributes the surplus funds of a sector in
an economy to a sector of an economy that needs it

Financial Institution
is an organization through which funds in the form of money or
claims in money are assembled and transferred from individuals and
firms having surplus of economic goods to those that need it

Financial Market
is where borrowers and lenders or investors are regulated and
where the price of funds (interest rate) is determined

Copyright© 2006 South-Western/Thomson Learning. All rights reserved.

 Philippine Financial System

Categories of Financial Institutions

1. Banking Institutions – authorized by BSP to engage in lending funds through
the receipt of deposits
Types:
1. Commercial Bank - accepts and creates demand deposits
a. EKB – commercial bank with investment house functions
b. KB – an ordinary commercial bank
2. Thrift Bank - organized to encourage deposits
a. Private Development Bank
b. Savings and Mortgage Bank
c. Stock Savings and loan association
3. Rural Bank - promote and expand rural economy

Copyright© 2006 South-Western/Thomson Learning. All rights reserved.

 Philippine Financial System

Categories of Financial Institutions

4. Specialized Government Bank - government owned and controlled banks
5. Foreign Bank - subsidiary or affiliate of foreign banks that conduct
transaction in foreign currencies

2. Non-Bank Thrift Institutions – organized as non-bank entities without any

banking or quasi-banking functions
a. Mutual building and loan association
b. Non-stock savings and loan association

Copyright© 2006 South-Western/Thomson Learning. All rights reserved.

 Philippine Financial System

Categories of Financial Institutions

3. Financial Intermediaries – persons or entities whose principal functions
include lending, investing or placement of funds among others

♦ Investment house
♦ Financing companies
♦ Security dealer / broker
♦ Fund manager
♦ Pawnshop

Copyright© 2006 South-Western/Thomson Learning. All rights reserved.

 Philippine Financial System

PRINCIPAL SOURCES OF FUNDS

A. CAPITAL CONTRIBUTIONS – the original paid-in of
stockholders/members and additional payments of subscription

B. DEPOSITS – 3 Kinds: Savings, time and demand deposits

C. REDISCOUNTING NOTES – borrowings from the BSP against eligible

loan papers offered as collateral

D. BORROWINGS FROM DOMESTIC AND FOREIGN SOURCES

E. DEPOSIT SUBSTITUTE LIABILITIES

Copyright© 2006 South-Western/Thomson Learning. All rights reserved.

 Philippine Financial System

FINANCIAL MARKETS IN THE PHILIPPINES

A. Capital Market – is a market for long-term securities. Managed by PSE
B. Foreign Exchange Market – known as FOREX and is a market for foreign
currencies
C. Money Market – is a market for short-term securities and usually occur
between banks and other financial institutions where they lend each other
on overnight basis and/or where the treasury bill is exchanged
D. Commodities Market – is a market for commodities such as oil, gold, silver
E. Derivatives Market – is a market of financial contracts derived from the
capital and usually depends on the price of the asset where it is derived.
Examples are spot, forward, options and warrants.

Copyright© 2006 South-Western/Thomson Learning. All rights reserved.

 Philippine Financial System

Roles of Financial Markets

A. Saving mobilization
B. Investment
C. National growth
D. Entrepreneurial growth
E. Industrial development

Copyright© 2006 South-Western/Thomson Learning. All rights reserved.

 Philippine Financial System

Building Blocks of Financial System

A. Money
B. Financial instruments
C. Financial institutions
D. Central Bank

Copyright© 2006 South-Western/Thomson Learning. All rights reserved.

Philippine Financial System

THANK YOU!!!

Copyright© 2006 South-Western/Thomson Learning. All rights reserved.