BANKING AND

FINANCIAL
INSTITUTION
 Banking and Financial
Institutions

An Overview of the Philippine Financial System

by
Fajardo, Feliciano R. et al. 3rd edition. Financial
Institutions.
 An Overview of the Philippine
Financial System
• LEARNING OBJECTIVES
• This Subject provides basic general information on the organization and
operations of various banking and non-banking financial institutions
including the informal financial institutions like the different forms of
unlicensed moneylending.
• I believe that it is important for students of financial management to
know the role of financial institution in our social and economic
development. As an integral part of the economy and society.
• Financial system is a system that allows the exchange of funds between
lenders , investors, and borrowers..
• Money – is something generally accepted as a medium of exchange means of
payment.
• Money markets – the trade in a short term negotiable instruments ( as certificate of
deposit – regular or time ) Negotiable Instruments is a documents guaranteeing the
payment of specific amount of money, either on demand.
• Credit unions – is an organization that gives small loans to it’s members at low
rates and that offers banking services ( savings and checking accounts)

From point of Economics, the transfer of funds from lenders to borrowers

through financial institutions creates several favourable effect in the economy.
1. employment , 2. income 3. consumption, 4. tax to the Gov’t.
• Such as; Transfer of money can improve consumption pattern and resource
allocation. People with surplus money which they do not use for
production have no positive contribution to the society and the economy.
• But if these idle financial resources are (lent(lend) out) to give for
temporary use on condition in returned. In business inclinations, then such
resources become tools of production.
These will create more
• 1. employment - having an integrated job in the community.
• 2. income - it an amount of money received on a regular basis fro work or investment.
• 3. consumption - it is the using of a resource.
• 4. tax to the Gov’t. - the taxes imposed by the national government it is the life blood of the
government.
Many other member of the society will be benefited, in a long run economic linkages
effects, simulate further economic growth for the whole economy.
 Nature and Necessity of Finance

• The financial system is a network of various institutions which generates,

circulates and controls money and credit. It provides intermediation
(intervention) between the suppliers and users of credit.
• As integral part of the economic system, it provides loans to poor families,
capital to small producers, big businessmen, and industrialists.
• These arises a need for financial institutions in a society where any individuals
have surplus incomes. People with excess incomes are inclined to place their
extra funds in investments. But in a developed economy specialist are needed
to facilitate the meeting of lenders and borrowers.
• Lenders – are those people who give for temporary use on condition or equivalent be
turned sometimes mostly with interest.
• Borrowers – are the people who receive amount with the implied equivalent.
 5 Elements of the Financial System

• 1. Financial Claims – These comprise the money and the rights to receive money
under specific circumstances. These are evidenced by financial instruments which
specify the terms of the claims.

There are the two broad claims

• 1. Debt
• 2. the Equities.
• Debtor – a person; organization; government; that owes money and has an obligation to pay
plus interest.
• Equities are investment like shares of stock which earn dividends mostly in a share in company
stock.

Shares of Stocks is an ownership of the corporations in a form of a portion stock.

StockHolder, is the owner of the stocks.
2. Financial Institutions – These are private or government organization whose
assets consist primarily of claims or incomes primarily derived from dealing
in/or performing services in connection with claims.
• Savings and Loan Association - is an association acccept savings at interest and lend
moneys to savers.

3. FINANCIAL MARKETS serves as a means of bringing the forces of demand and supply
of financial claims.

Financial Market is a market in which people trade financial securities and derivatives such as futures
and options at low transaction costs. Securities include stocks and bonds, and precious metals.
Stocks and bonds are certificates that are sold to raise money for starting a new company or for
expanding an existing company.
1.) Stocks, or shares of stock, represent an ownership interest in a corporation.
- Stocks pay dividends to the owners, but only if the corporation declares a dividend.
2.) Bonds are a form of long-term debt in which the issuing corporation promises to pay the principal
amount at a specific date.
• 4. Government Agencies– The monetary board is the policy-making body (the
Bangko Sentral ng Pilipinas ). Laws on Money, Credit and banking are legislated
by the Congress.
• The role of government agencies has a tremendous impact goal of the Bangko
Sentral is to attain internal and external stability of our peso.
• Stability of Peso means to balance the price and the sustainable growth and the cobertability
of peso.
• 5. Laws and Policies – Law of land. The National government regulates and
supervises the behaviour of the whole economy. Hence, it’s control of the
financial system is a vital condition for the whole economic behaviour. It is
formulated to ensure the desired individuals in the transfer of funds: risk ,
inconvenience and cost of transfer and the desire to avoid illiquidity.
 Financial institution perform certain specific functions such
as:
• Investigation and Credit Analysis. – An individuals who lends his money
through a financial institutions is assured of a minimum risk.
• To ensure that funds will be used efficiently by the borrower to protect the interest
of both lender and financial institution.
• Matching the Supply and Demand for Funds. – Financial institutions perform
a brokerage function. They bring the lenders and borrowers together.
• Some financial institutions specialize matching the supply of savings with the
demand for funds.
• Provision for Liquidity- it is a need of cash prior to due date of payment. The
brokerage functions which provides and organized market.
• Liquidity is the amount of money that is readily available for investment and
spending.