Banking Institutions

Banking Institutions(Banks)
• Officially chartered institutions empowered to receive deposits, make
loans, and provide checking and savings account services, all at a profit.
• a financial intermediary that accepts deposits and channels those
deposits into lending activities, either directly or through capital
markets. A bank connects customers with capital deficits to customers
with capital surpluses.
• financial institutions given the responsibility of accepting deposits from
the general public and lending these to those in need.
• an institution whose current operations consist of granting loans and
receiving deposits from the public
Bank Functions
1. Deposit function – receives demand deposits which can only be withdrawn.
2. Loan Function – advances sums of money for relatively short periods of
time to persons engaged in commerce and trade
3. Exchange Function – refers to the transfer of funds without the physical
transfer of cash
4. Trust Function – fiduciary activities such as administrator of estates,
guardians of minor’s interest, registrars and transfer agents of stocks and
bonds, executors of last will and testaments.
5. Advisory Function – offers expert advice to clients on their business dealings
through the banks experienced officers
Classifications of Banks
1. As to ownership
• Private banks
• Public banks
2. As to place of incorporation
• Domestic
• Foreign
3. As to structure
• Stock
• Non-stock
Classifications of Banks
4. As to BSP MORB (Manual of Regulations for Banks)
• (BSP MORB-A compilation of banking regulations and policy issuances
of the Bangko Sentral ng Pilipinas (BSP). It is a convenient reference
and guide for banks in the conduct of their operations.)
A. Universal bank (UB)
B. Commercial bank (KB)
C. Thrift bank (TB)
D. Rural banks (RB)
E. Cooperative banks (CoopB)
F. Islamic Bank (IB)
A. Universal Bank
• A Universal Bank shall have the authority to exercise, in addition to
the powers and services authorized for a Commercial Banks and those
provided by other laws which are the following:
a. Power of an Investment House
b. Power to invest on non-allied enterprises
c. The power to own up to 100% of equity in a Thrift Banks, and Rural Banks,
and Financial Allied Enterprise,
d. The power to own up to 100% voting stock of only one other UB or KB
B. Commercial Bank
• Corporations engaged regularly in the lending of funds obtained from the public
through the receipt of deposits and which accept or create demand deposits subject
to withdrawal.
• Exercise the general powers incident to a corporation and carry the business of a
commercial bank such as:
a. accepting drafts
b. issuing letters of credit
c. discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences
of debt
d. accepting or creating demand deposits;
e. receiving other types of deposits and deposit substitutes
f. buying and selling foreign exchange and gold or silver bullion
g. acquiring marketable bonds and other debt securities
B. Commercial Bank
• Corporations engaged regularly in the lending of funds obtained from the public through
the receipt of deposits and which accept or create demand deposits subject to withdrawal.
• Exercise the general powers incident to a corporation and carry the business of a
commercial bank such as:
h. extending credit, subject to such rules as the Monetary Board may promulgate.
i. invest in the equities of allied enterprises
j. purchase, hold and convey real estate
k. receive in custody funds, documents and valuable objects
l. act as financial agent
m. make collections and payments for the account of others and perform such other services for their
customers
n. act as managing agent, adviser, consultant or administrator of investment management/
advisory/consultancy accounts
o. rent out safety deposit boxes
Financial Allied Undertakings
• Leasing companies including leasing of stalls and spaces in a commercial
establishments
• Investment houses
• Banks
• Financing companies
• Credit card companies
• Financial institutions catering to small and medium scale industries including
venture capital corporations
• Companies engaged in stock brokerage/securities dealership
• Companies engaged in foreign exchange dealership
Non-Financial Allied Undertakings
• Warehousing companies
• Storage companies
• Safe deposit box companies
• Companies primarily engaged in the management of mutual funds
• Companies engaged in providing computer services
• Insurance agencies
• Companies engaged in home building and home development
• Companies providing drying and/or milling facilities for agricultural
crops
C. Thrift Banks
• Established primarily to mobilize small savings and provide loans generally longer
and easier terms. They cater to small and medium enterprises.
• Services offered by Thrift Banks:
a. grant secured and unsecured loans
b. extend credit facilities to private and government employees
c. accepts savings and time deposits
d. accepts foreign currency deposits
e. act as a correspondent to other financial institutions
f. purchased, hold, and convey real estate.
g. open current or checking account
h. act as a collection agent for government agencies
i. act as official depository of national agencies and of municipal where the TB is located
D. Rural Banks and E. Cooperative
Banks
• Largely privately owned that provide credit facilities to farmers and merchants
or their cooperatives and in general, to the people of rural communities.
• Services offered:
a. extend loans and advances primarily for the purpose of meeting the normal credit
needs of farmers, fishermen, cooperatives, merchants, private and public employees
b. accepts savings and deposits
c. act as a collection agent
d. accepts current or checking accounts
e. act as trustee over estates or properties of farmers and merchants
f. act as official depository of municipal, city or provincial funds in the municipality, city
or province where it is located
E. Islamic Banks
• also known as non-interest banking, is a banking system that is based
on the principles of Islamic, or Shari'ah, law and guided by Islamic
economics.
• Two fundamental principles of Islamic banking are the sharing of
profit and loss and the prohibition of the collection and payment of
interest by lenders and investors. Islamic law prohibits collecting
interest or "riba."
Specialize Government Banks
• Banks organized by the government to serve a special purpose.
1. Development Bank of the Philippines
2. Land Bank of the Philippines
3. Al-Amanah Islamic Bank
Bank Credit Instruments
• Instruments offered to customers and use by banks to generate profit.
• Divisions of bank credit instruments
• Promises to pay(2 parties) • Orders to pay(3 parties)
• Promissory note • Bill of exchange
• Bank note • Check
• Bankers acceptance • Current account(NOW account)
• Letter of credit • Drafts

Money market instruments

• T-bills
• Negotiable certificate of deposits
• Commercial papers
Deposit Function
• Represented by money or representative of money but not limited to money entrusted to banks for
safekeeping
• Types of deposits
• Demand deposits
• Time deposits
• Kinds of depositors
• Individual
• Business
• Government
• Other banks
• Motives or reasons for deposits
• Safety
• Convenience
• Earnings/income
• Accommodation
Deposit Function

The Receiving Teller The Paying Teller

• Errors in counting the money deposited • Date of check
• Presence of counterfeit • Wrong endorsement
• Postdated checks • Material alteration
• Stale checks • Forgery
• Material alterations
• Crossed checks
• Wrongly endorsed instruments
• Stop-payment order
• Carelessness in adding deposit slips
• Insufficient funds
• Carelessness in designating account to be
credited • Erroneous payment
• The deposit slip • Supply of cash
Receiving teller
Paying teller
The PDIC (Philippine Deposit
Insurance Corporation)
• PDIC is a government instrumentality created in 1963 by virtue of
Republic Act 3591, as amended, to insure the deposits of all banks.
• PDIC exists to protect depositors by providing deposit insurance
coverage for the depositing public and help promote financial stability
• Maximum Deposit Insurance for Each Depositor Php500,000
• Mandate
• PDIC exists to provide deposit insurance coverage for the depositing public to
help promote public confidence and stability in the economy. It ensures prompt
payment of insured deposits, exercises complementary supervision of banks,
adopts responsive resolution methods, and applies efficient management of
receivership and liquidation functions.
The PDIC (Philippine Deposit
Insurance Corporation)
• Exclusions from deposit insurance coverage as stipulated in R.A. No.
9576:
• Investment products such as bonds, securities and trust accounts;
• Deposit accounts which are unfunded, fictitious or fraudulent;
• Deposit products constituting or emanating from unsafe and unsound
banking practices;
• Deposits that are determined to be proceeds of an unlawful activity as
defined under the Anti-Money Laundering Law.
The PDIC (Philippine Deposit Insurance
Corporation) – Sample Computation Single Account
The PDIC (Philippine Deposit Insurance
Corporation) – Sample Computation Single Account
The PDIC (Philippine Deposit Insurance
Corporation) – Sample Computation Joint Account
The PDIC (Philippine Deposit Insurance
Corporation) – Sample Computation Joint Account
The PDIC (Philippine Deposit Insurance
Corporation) – Sample Computation Joint Account
The Bank Reserves
• A bank reserve is the currency deposit which is not lent out to the
bank's clients.
• A small fraction of the total deposits is held internally by the bank in
cash vaults or deposited with the central bank.
• Minimum reserve requirements are established by central banks in
order to ensure that the financial institutions will be able to provide
clients with cash upon request.
Primary reserves
• Composition of primary reserves
• Cash in vaults
• Deposits to BSP
• Deposits to other banks
• Exchanges in the clearing house
• Checks for collection
Primary reserves
• Factors affecting size of primary reserves
• The number of depositors and the diversity of the business interests
• The confidence of the public in the bank
• The nature of the banks deposit
• The percentage of the legal reserve requirements
• The percentage and quality of the secondary reserves
• The demand for loans
• Habits and customs of the community
• Other factors
Secondary reserves
• Three important quality of secondary reserves
• High quality
• Short duration
• Must be marketable
• Composition of secondary reserves
• Short-term government securities
• Banker’s Acceptances
• Commercial papers issued by corporations with high credit ratings
• Short term loans
• Size of secondary reserves(no absolute rule, depends on the bank)
Investment Reserves
• What are eligible for investment reserves
• Stocks
• Bonds
• Other long term investments
Loan Function
• Types of loans
• As to purpose(agricultural, industrial, personal, housing, car, educational)
• As to maturity(long term, intermediate term, short term)
• As to security(secured, unsecured)
• As to method of payment(self-liquidating, non-self-liquidating) or (lump sum,
installment)
• As to method or release(Lump sum, installment)
• As to source
Trust Function
• The process the trustor, grantor, donor, testator transfers the title of
the property to a trustee for the benefit of the beneficiary, wherein
the trustee practices the prudent man principle.
Trust Activities of the Bank
• To act as a trustee for a corporation’s assets under mortgage/bond
issue
• To act as a transfer agent or registrar of stocks and bonds
• To act as a guardian of a minor’s interest
• To act as executor of last will and testaments
• To act as administrator of estates
• To act as depository for escrow deposits, valuables, or other securities
• Ta act as assignee, receiver, or depository
• To act as an advisor
Kinds of Trust
• Voluntary or living trust
• Testamentary trust
• Insurance trust
• Employee benefit trust
• Investment management services
• Corporate trust