Group 6

Banking

Before we unravel the meaning of banking, let us first define the meaning of the bank.

What is a bank?

According to oxford dictionary, it is an organization offering financial services,

especially loans and safe keeping of customers money.

An intermediary on financial matters. It acts as middleman between the suppliers

and users of money.

A bank can also be called a money broker. It brings together the lenders and
borrowers of financial resources.

The legal meaning of a bank as defined in the General Banking Act, “Only entities
duly authorized by the Monetary Board of the Central Bank may engage in lending
of funds obtained from the public through the receipt of deposits of any kind, and
all entities regularly conducting such operations shall be considered as banking
institution and shall be subject to the provisions of this Act, of the Central Bank
Act, and of other pertinent laws”.

What is banking?

Banking is the business activity of a bank. Simply, any activity carried

out by a bank for business purposes is called banking.

Examples of these activities are accepting savings, lending money, leasing

properties to needy people, paying for cheques, providing mortgage facilities,
acting on to standing orders, etc.

Nowadays, banking can be done via internet, which is called Online Banking.

In summary, Bank is a tangible object, while banking is a service.

Bank refers to the physical resources like building, staffs, furniture, etc, while
banking is the output (financial services) of the bank by utilizing those resources.

How banks differ from other kinds of financial institutions?

Financial institutions can be divided into two types: banking financial institutions
and non-banking financial institutions.

Bank falls under one category of financial institutions known as banking financial
institution.

Their main difference is that a Banking Financial Institutions can accept deposit
into various savings and demand deposit accounts, which cannot be done by a
non-banking financial institutions.
A Non-Banking Financial Institution provides a variety of services including some
that overlap with BFI such as grant loans, offer financial advice, investment in
financial securities, leasing of equipment, etc.

The primary purpose in depositing funds in banks are convenience, interest

income, and safety. Whereas, the primary purpose in investing funds in non-
banking financial institutions is to gain additional income.

Nature of Banking Business

The Philippine banking industry has always played a substantial role in sustaining the pace of
growth of the country’s economy. The entire banking sector is supervised by the Central bank
of the Philippines, Bangko Sentral ng Pilipinas, while the overall industry is segmented and
variegated as under:

• 40 Commercial and Universal banks together hold around 90% of the total market share of
banking industry in the Philippines. These banks claim a lion’s share of the total deposits
available to whole banking industry. Their area of services ranges from wholesale, retail and
corporate banking to treasury, trade, underwriting and investment advisory. Some top
commercial and universal banks (on the basis of available assets) in the Philippines are:
Metropolitan Bank and Trust, Land Bank of the Philippines, Banco de Oro Unibank, Philippine
National Bank and Bank of the Philippine Islands.

• There are 495 Rural and Co-operative banks in the Philippines which are responsible for
development of rural areas and their economies by providing basic financial services to rural
populace. The major difference between rural and co-operative banks is the nature of their
ownership. Rural banks are owned by the private individuals while co-operative banks are
under the ownership of co-operative societies.

• Thrift banks in the Philippines are 57 in numbers. These banks are further categorized into
Private development banks, Savings and mortgage banks, Loan associations, stock savings
and microfinance saving banks. Their major activities include collection of deposits from small
savers and investing them into profitable portfolios. These banks are also engaged in
providing trade services to small and medium-sized enterprises and individual entrepreneurs.

Emerging business segments in banking industry include:

A form of partnership or association between a financial institution and an insurance

company; where banks offer insurance products through their platform to their customers. In
recent years, the Bangko Sentral ng Pilipinas has received numerous applications both from
local and foreign banks seeking approval for provision of Bancassurance services through
their platforms.

Mobile banking or Branchless banking: a relatively new form of service where banks or
financial institutions allow their customers to conduct financial transactions through their
mobile devices. Mobile banking can be carried out in collaboration with telecom industry and
is far away from the traditional brick-and-mortar banking structure.

Retail Wealth Management: Wealth management services and Retail investment advisory
is provided to young or new investors showing interest in mutual fund units and other such
financial products.

Microfinance: This is one of the fastest growing business not only in the Philippines but is
also attracting the whole world’s admiration. As per the latest report of the Central bank,
there are more than 200 microfinance institutions working in the country, that has lent around
$250 million to 1 million borrowers.

Most bank lending worfklows involve various methods of assessing creditworthiness of

potential corporate borrowers. The CreditBPO Rating Report® is a fintech tool designed to
automate banks’ pre-clearance of prospective business borrowers at credit initiation. It
enables banks and business borrowers to bridge the credit gap toward national development
and growth.

Classification of Banks
Universal and commercial banks represent the largest single group, resource-wise, of financial institutions in the
country. They offer the widest variety of banking services among financial institutions. In addition to the function of
an ordinary commercial bank, universal banks are also authorized to engage in underwriting and other functions of
investment houses, and to invest in equities of non-allied undertakings.

The thrift banking system is composed of savings and mortgage banks, private development banks, stock savings
and loan associations and microfinance thrift banks. Thrift banks are engaged in accumulating savings of
depositors and investing them. They also provide short-term working capital and medium- and long-term financing
to businesses engaged in agriculture, services, industry and housing, and diversified financial and allied services,
and to their chosen markets and constituencies, especially small- and medium- enterprises and individuals.

Rural and cooperative 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.

http://www.bsp.gov.ph/banking/bspsup.asp
https://creditbpo.com/content/overview-philippines-banking-industry