THE PHILIPPINE

FINANCIAL SYSTEM
Financial System
 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.
 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.
 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.
 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.
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 three Deputy Governors, subject to the approval of the
Monetary Board.
 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 is also into the upgrading of its domestic prudential
standards in areas of capitalization, connected or pooled
lending, loan provisioning, data disclosure, and qualifications
of owners and managers.
 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.
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 like savings and mortgage banks, private
development banks, and stock savings and loan association;
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
 Private Banking Institution
 Commercial Banking Institutions.
The Banks that fall under commercial banking institutions are the ordinary commercial
banks or non-expanded commercial banks. These banks continue to account for the bulk of the total
resources of banking industry.
 The Thrift Banks.
Thrift banks are primarily engaged in mobilizing the small savings of the people. They
provide funds for agriculture and industry at reasonable interest rates. The small producers like
farmers, fishermen, craftsmen, and poor consumers can rely on such banks for financing their
production and consumptions inputs.
The following banks fall under the category of Thrift Banks
1. The Savings and Mortgages Banks.
The primary function of a savings and mortgage bank is to receive time deposit of different
types and to invest its funds in long term investment.
2. The Savings and Loan Association.
Very similar to the savings and mortgage banks are the savings and loans associations
nowadays. However, these institutions may either be stock or non-stock corporations.
3. The Private Development Banks.
This is quite different from the government institution of the same name. It is a government
entity, formerly the Rehabilitation Finance Corporations.
 The Rural Banks.
Rural Banks fulfill the investment function by allowing small farmers to finance their needs
through the granting of loans for capital or other uses.
 Government Banking Institutions
 The Philippine National Bank.
The Philippine National Bank (PNB) operates under the provision of Executive Order
No. 80, the 1996 revised charter of PNB.

 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.

 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.

 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, Lanao del Norte, Zamboanga del Sur, Zamboanga del Norte, and Sulu.
 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
 Investment House/Banks.
The term “investment house” is defined to mean as “any enterprise” which
engages in the underwriting of securities of other corporations “. Underwriting is
the act or process of guaranteeing the distribution and sale of securities of any kind
issued by another corporation.

 Securities Brokers/dealers.
Pursuant to the provision of the Revised Securities Act, no broker, dealer, or
salesman must engage in business in the Philippines as such broker, dealer, or
salesman or sell any securities, including securities exempted under the said law.

 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.
 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.

 Private Insurance.
Private insurance companies contribute to the country's socio- economic
development as well as to the insured.

 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.

 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 on
deposit for the use.
 Non-Stock Savings and Loans Association.
A non-stock savings and loans associations is a corporation engaged in
the business of accumulating the savings of its member.

 Financing Companies.
Financing companies or partnerships, except those regulated by the
Bangko Sentral, the Insurance Commissioner, and the Cooperative
Administration Office which are primarily organized for the purpose of
extending credit facilities to consumer and to industrial, commercial, or
agricultural enterprises.

 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.
Government Non-Financial Institution
 The Government Service Insurance System.
On May 13 May 1937, the 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.

 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.
 Philippine Export and Foreign Loan Guarantee Corporation.
The Presidential Decree No. 1080 entrusts the Philippine Export and Foreign
Loan Guarantee Corporation (PEFLGC) to undertake the following:
• To guarantee approved foreign loans, in whole or in part, granted to any
domestic entity, enterprise, or corporation, majority of the capital of
which is owned by citizen of the Philippines.
• To guarantee Philippine banking and financial institutions against loss that
may be incurred in connection with:
1. The grant of loans/credit accommodations to exporters, producers
of export products, or contractors with approved service contactors
abroad, provided that such exporters, producers or service contractors
are Filipinos or entities majority of the capital of which are owned by
citizens of the Philippines; and
2. The issuance of standby letters of credit or of letters of guarantee,
as the case may be, to secure the performance of approved service
contracts abroad entered into by any domestic entity, enterprise, or
corporation, majority of the capital of which are owned by citizen of the
Philippines.
The National Home Mortgage Finance Corporation.
 The National Home Mortgage Finance Corporation’s (NHMFC) primary purpose is to develop and
provide a secondary market for home mortgages granted by public and/ or private home financing
institutions.
 Under Section 5 of Presidential Decree No. 1267, the NHMCF is authorized to exercise the following
powers and functions:
• To purchase, acquire, sell, discount, refinance, or otherwise deal in home mortgages or
participations therein under such terms and conditions as may be prescribed by the Board of
Directors of the corporations.
• To borrow funds from domestic or foreign private or public financial institutions as may from
time to time be required for its operations, and to issue bonds, promissory notes debentures, and
other debt instruments in local or foreign currency.
• To own, lease, purchase or otherwise acquire, sell or otherwise dispose of property, real or
personal as may be necessary and appropriate for the conduct of its business.
• To invest funds or monies of the corporations not invested in mortgage loans in securities issued
by the national government, Bangko Sentral and other government entities, including
government-owned and controlled corporations, the servicing and repayment of which are fully
guaranteed by the Republic of the Philippines.
• To enter into and perform such contracts with any person or entity, public or private, as may be
necessary, proper, or conductive to the attainment or furtherance of the objectives and purposes
of the corporations.
• To adopt, alter, and use a corporate seal; to sue and be sued; and generally, to exercise all the
powers of a corporation under the Corporation Code of the Philippines which are not inconsistent
with P.D 1267.
• To promulgate such rules and regulations and to perform any and all things as may be necessary
and proper to carry out its responsibilities, powers, and function under P.D No. 1267.
 The different Institutions governed by BSP basically
divided into Banking System and Non-banking System.

*Monetary Board
*Monetary Stability Sector
*Supervision and Examination Sector
*Resource Management Sector
*The Structure of Different Sector
 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.
The BSP Monetary Board

 Chairman Benjamin E. Diokno

 Members
Carlos G. Dominguez III
Felipe M. Medalla
Juan De Zuniga, Jr.
Peter B. Favila
Antonio S. Abacan, Jr.
V. Bruce J. Tolentino
Functions of the Monetary Board
 Maintain monetary policies conducive to a balanced and
sustainable growth of the economy.
 Maintain price stability in the country.
 Promote and maintain monetary stability and the
convertibility of the peso.
 Maintain stability of the financial system
 Provide payment and other financial services to the
government, the public, financial institutions, and foreign
official institutions
 Supervise and regulate depository institutions
7 Functions of Bangko Sentral ng Pilipinas
(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.