An Overview of the

Philippine Financial System

Learning Objectives:
After reading the chapter, you will be able to:

Enumerate the functions of the BSP.

Explain the role of the Social Security System

Discuss the trading system n the Philippine Stock

Exchange

Identify the private non-bank financial intermediaries.

The Spanish Period
Among the kinds of money circulated
during the Spanish period are the
following:

Penniform Dos Spanish barrila- the

gold mundos
first known coin to
Piloncito have been minted
barter pillar dollar
ring in this country.
American Period
•Mexican dollar or peso
At the time •Spanish Filipino silver peso
of American •Filipino silver peseta (1/5 of a peso
occupation, termed as salapi)
the •Filipino silver half peseta- (1/10 of a
currency in peso termed as kalahati)
the •Filipino copper centavo- (1/100 of a
Philippines peso termed as isang centime
are the ff: •Filipino copper half centavo- termed
as isang pirita.
Among the banks opened during American occupation
are the ff:
 International Banking Corporation
 Guaranty Trust Company
 Wai Hung Bank
 Newberry and Reyes Bank
 Bank of Pangasinan
 Bank of Zamboanga
 Misaka Bank
 Postal Savings Bank
 Philippine National Bank
Philippines hired the services of the following
international mint:
 US Mint
 Bureau of Engraving and Printing at Washington
D.C.
 Thomas de Rue, Ltd in England
In the Philippine Coinage Act of 1903, the unit of
value is the theoretical gold peso containing 12.9
grains of gold and a silver peso containing 416 grains
of silver.
 Japanese Occupation

Jan.2, 1942- entry of Japanese Imperial Forces.

Mickey Mouse Notes or Mickey Mouse Money- money issued

and circulated during Japanese Occupation. The estimated
amount of Mickey Mouse Money as estimated by Southern
Region Development Bank known as the Nampo Kaihatsu
Kinko was P7B by Bureau of Census and Statistics P 8B and
other estimates amounting to P 11B. Galloping inflation
happened during the Japanese occupation.

Aug. 14, 1945- end of Japanese occupation.

Obras Pias was established in 1594 represented the first
organized financial institution in the Philippines. Capitalization
came from legacies of wealthy individuals who bequeathed
their estates to the chirch.

August 2, 1882, the first savings bank in the country

was founded by Father Felix Huertas and named
Monte de Piedad y Caja de Ahorros de Manila .

Banco Espanol-Filipino de Isabela II (today the BPI)

The 80’s: Universal Banking
ADVANTAGES
Universal banking- is the conduct OF UNIVERSAL
of a variety of financial services BANKING
such as trading of financial
instruments, foreign exchange
activities, underwriting new debt
and equity issues, investment Diversification
management, insurance as well
as extension of credit and deposit
gathering.
Expanded
business
Post-War Period
To restore Commonwealth Government and to
accelerate economic rehabilitation and security,
President Osmena created banking division of
the national treasury. Executive order No. 33 was
signed on March 10, 1945 to provide a safe
banking depository for savings.
• The country had an inadequate supply of Philippine pesos which
were mostly in ore war currency and a minor portion of guerilla
notes. The issuance of “Victory Notes” immediately augmented
the supply of money in circulation.
When all pre war deposits had been exhausted, while
the pattern of our foreign trade continued to run
adverse, the government had to resort to the use of
two fiscal remedies:

It resorted to taxation, but

when was not found
adequate it had to resort to
borrowing.

Establishment of Central Bank

and it had to impose import
and exchange controls.
Post Marcos Era

Corazon Aquino assumed presidency in 1986 after a successful

People Power Revolution that ended two decades of the
Marcos rule. Aquino found it necessary to offset P130B in bad
loans granted by the two major financial institutions, the
Philippine National Bank and the Development Bank of the
Philippines. This led to formulation of the Asset Privatization
Trust, whose primary goal was to dispose of government owned
and government-controlled properties. The assets sold resulted
to proceeds of P 20.1 B in 1991. Political instability during the
period meant the economy was also unstable, thus dampening
activity and growth.
The Nineties: The New Central Bank
(Bangko Sentral ng Pilipinas)

RA 265- the Old Central Bank Act of 1949

RA 7653- the New Central Bank Act (a consolidation of

House Bill NO. 7037 and Senate Bill No. 1235) signed into law
on June 14, 1993 by President Ramos, paved the way to
the creation of a Central Monetary Authority (CMA)
named “ Bangko Sentral ng Pilipinas. This is an attempt to
improve and update the law on central banking.
Transition to CMA

With the accumulation of losses incurred by the Central

Bank since the early 1970s and early 1980s, there emerged
the pressing necessity to transform the Central Bank into an
independent CMA.

The CB’s huge losses reaching an estimated P317B as of

Dec. 1992- almost equivalent to the annual budget of the
national government have doubtless dragged down the
economy for years.
THE ORIGIN OF THE PROBLEM

According to the words of Beth Day Romulo,

the CBP was unfortunately used by the Marcos
administration like a piggy bank. CBP bailed
out distressed banks, advanced money for the
national membership in the IMF and World
Bank, backed and absorbed questionable
loans for favorite corporations
Among the major changes incorporated in the law are the
following:
 Change in the composition of the monetary board 2
members from government and 5 from public.
 Adoption of price stability conducive to a sustainable growth
of the economy and the maintenance of monetary stability
and the convertibility of peso is its primary objective.
 Strengthening of the regulations and supervision framework
for banks and quasi banks.
 Abolition of two suspense accounts the Monetary Adjustment
Accounts (MAA) and the Exchange Stabilization Adjustment
Account (ESAA) in the balance sheet to which lodged
expenses have been related to printing and minting of
currency.
Phase out of fiscal agency function (e.g. issuing and
servicing of government securities
Phase out of regulatory functions
Additional mandatory reports to assure
accountability
Financial restructuring of the CB upon effectivity of
the law
Imposition of requirements on trust accounts by the
monetary board
Imposition of interest on loans and advances
 • Maintenance of monetary stability in the
Philippines
• Preservation of the international value of
ORIGINAL
the peso and its convertibility into other
OBJECTIVES freely convertible currencies
OF CBP • Promotion of a raising level of production,
employment and real income in the
Philippines.
• To maintain internal and external monetary
stability in the Philippines, and to preserve
the international value of the peso and the
AMENDED convertibility of the peso into other freely
convertible currencies
OBJECTIVES
• To foster monetary, credit and exchange
conditions conducive to a balanced and
sustainable growth of the economy.
Functions of the BSP
Liquidity management- the BSP formulates
monetary policy aimed at influencing money
supply consistent with its primary objective to
maintain price stability.
Currency issue- exclusive power to issue the
national currency. All notes and coins issued by
the BSP are fully guaranteed by the government
and considered legal tender for all private and
public debts.
Lender of last resort- extend loans and advances
to banking institutions for liquidity purposes
Financial supervision- supervises banks and
exercises regulatory powers over non-bank
institutions performing quasi banking functions.
Management of foreign currency reserves- seeks
to maintain sufficient international reserves to
meet any foreseeable net demands for foreign
currencies.
Determination of exchange rate policy- currently,
the BSP adheres to a market-oriented foreign
exchange policy.
Other activities- the BSP functions as a banker,
financial advisor and official depository of the
government.
Central Bank/BSP Governors
 Miguel Cuaderno, Sr -1949-1960
 Andres V. Castillo -1961-1967
 Alfonso Calalang -1968-1970
 Gregorio S. Licaros -1970-1981
 Jaime C. Laya -1981-1984
 Jose B. Fernandez Jr. -1984-1990
 Gabriel C. Singson -1993-1999
 Rafael B.Buenaventura -1999-2005
 Amando M. Tetanco Jr.-2005-2017
 Nestor Espenilla Jr- 2017 to present
The present members of the monetary board are
the following:
Governor and chairman of the board
Nestor A. Espenilla Jr.
Members:
Antonio S. Abacan Jr.
Valentin A. Araneta
Carlos G. Dominguez III
Peter B. Favila
Felipe M. Medalla
Juan De ZuÑega Jr.
Monetary board- is the policy making body of
Central bank. Its chairman is the BSP governor.

The Deputy governor heads each of the BSP’s

operating sector as follows:
Banking services Sector- it serves the needs of
all banks such as accepting deposits,
withdrawals and extending credit through the
rediscounting facility.
 Supervision and Examination Sector- enforces and monitors
compliance to banking laws to promote a sound and
healthy banking system.
Types of Examination
General or Annual Examination- it is conducted once
a year.
Special or Interim Examination- conducted as often
as necessary.
Special investigation- conducted when complaint is
receives by the BSP from the borrower, stockholder,
depositor or employee.

 Resource management Sector- serves the human,

financial and physical resources needs of the BSP.
MONETARY POLICY

•- These are measures or actions taken by the Central

bank to regulate the supply of money in the economy.
It is aimed at influencing the timing, cost and availability
of money and credit as well as other financial factors, for
the purpose of stabilizing the price level.
Types of Monetary Policy
Contractionary policy- if the BSP believes that money supply is in
excess of a desired level, then it can take action to reduce the
money supply.
Expansionary policy- if the liquidity situation is tight, and
there is a need to expand money supply, this policy is
implemented .
Inflation Targeting
On Jan. 24, 2000, the BSP’s policy making body, the monetary,
approved in principle the shift to inflation targeting from
monetary aggregate approach as a framework for conducting
monetary policy.

•The main focus of this approach is on achieving price

stability as the ultimate goal of monetary policy.
•The Philippines joined the long list of inflation targeters
such as Australia, Canada, Finland, Sweden, New
Zealand, Thailand, Israel, Brazil, United Kingdom which
have moved from high inflation to low inflation following
the successful implementation of inflation targeting in their
countries.
Reforming the Banking Law

Estrada continued fervently the strides made by

the Aquino and Ramos administration in reforming
the major components of the Philippine
economy. Initiative in raising the required capital
of banks reinforced the resource base of the
banking industry. This resulted to bank mergers, a
known example would be the PCI and Equitable
banks merging into PCI-Equitable, that paved the
way for other banks to take the same option.
 Focusing on the Challenges of Globalization
The world is definitely changing and with it are
challenges that face present businesses, financial
institutions and the economy as a whole.
One of the main areas of growth is Small and
Medium-Scale Enterprises (SME’s).
Government financial institutions (GFI) are
implementing a ore open view in credit and
financing.
SME United Lending Opportunities for National
Growth (SULONG) project- seeks to further
empower SME’s through a standardized lending
program.
The GFI’s participants include:
Development Bank of the Philippines (DBP)
Land Bank of the Philippines (LBP)
Small Business Guarantee and Finance Corporation
Philippine Export Import Credit Agency
Social Security System (SSS)
Quedan and Rural Credit Guarantee Corporation
National Livelihood Support Program
Peoples Credit and Finance Corporation
1949-1973 Logo of CBP
The original seal of the CBP was designed by Dan
Zamora of Crispulo Zamora & Sons based on the ideas
suggested to him by governor Miguel Cuaderno, Sr.
 A man symbolizing the Filipino Nation pushing the
Wheel of Progress.
 Rays of the sun denoting the Dawn of Prosperity and
revealing the country’s traditional agricultural products
as the basic ingredients for industrial production and
commerce. The arms proper is a circle symbolizing
perpetuity and around it the text Central Bank of the
Philippines to suggest that the bank provides
necessary fiscal, commercial and monetary policies.
1973-1978
1993-2010(official logo 1993-2013 on banknotes
and 1995-2017 on coins
The BSP seal is a composite of a Filipino flag, the risen
sun and mountains framed by a wheel and ringed by
the inscription, BANGKO SENTRAL NG PILIPINAS.
 FLAG- symbolizes the country and expresses the
Filipino people’s nationalism and unity.
 RISEN SUN- signifies the bright future and renewed
spirit of the nation
 MOUNTAINS- represent stability
 WHEEL- signifies movement and industry, the key to
the nation’s economic progress.
2010 to present
It is a perfect round shape in blue that
features three gold stars and a stylized
Philippine eagle rendered in white strokes.
These framed elements are framed on the
left side with the text inscription ”Bangko
Sentral ng Pilipinas” underscored by a gold
line drawn in half circle. The right side
remains open signifying freedom, openness
and readiness of the BSP as represented by
the Philippine eagle to soar and fly toward
its goal. Putting all these elements
together is a solid blue background to
signify stability.
Principal elements of the logo:
 Philippine eagle- our national bird, is the world’s largest eagle
and is a symbol of strength, clear vision and freedom, the
qualities we aspire for as a central bank.
 Three stars represent the three pillars of central banking: price
stability, stable banking system and a self and reliable payment
system. It may also be interpreted as a geographical
representation of BSP’s equal concern for the impact of its
policies and programs on all Filipinos, whether they are in Luzon,
Visayas and Mindanao.
 Colors. Blue background- signifies stability
Stars are rendered in gold to symbolize wisdom, wealth,
idealism and high quality.
White color of the eagle and the text for BSP represents
purity, neutrality and mental clarity.
Font or type Face
Non-serif bold for BANGKO SENTRAL NG
PILIPINAS to suggest solidity, strength and stability
SHAPE-round shape symbolize the continuing
and unending quest to become an excellent
monetary authority committed to improved
the quality of life of Filipinos. This is also
evocative or our coins, the basic units of our
currency.
 The Philippine Financial System
BANKING SECTOR
 Commercial banks
 Thrift banks
 Private development banks
 Regional unit banks composed of rural banks
COMMERCIAL BANKS- any corporation which accepts or
creates demand deposits subject to withdrawal by check.
It is the largest single group of the country’s banking and
financial intermediaries that operate on branch banking
organizational structure.
Expanded commercial or universal banks- constitute
12 financial institutions, considered as one-stop
commercial banks performing com-banking functions
and non-related activities.
THRIFT BANKS- banking institutions organized primarily
to encourage deposits.
Kinds of thrift banks
 Savings and Mortgage Bank
 Private development banks
 Stock savings and Loan Association
RURAL BANKS- these re regional units organized in accordance
with the provision of Rural Banks Act R.A. No. 720. Its primary
purpose is to promote and expand the rural economy. All rural
banks are privately owned although they receive equity
counterparts, loans and technical assistance from the central
bank.
SPECIALIZED BANKS
 Development Bank of the Philippines
 Land Bank of the Philippines
 Philippine Amanah Bank
Development Bank of the Philippines- organized under RA 85
to provide long term credit facilities for rehabilitation,
development and expansion of agriculture and industry
Land Bank of the Philippines- created under the code
of agrarian reform as amended by PD 251 whose
purpose it to provide timely and adequate financial
support in all phases involved in the execution of
needed agrarian reform.
Philippine Amanah Bank- created under PD.264 whose
purpose is to provide credit, commercial,
development and savings banking facilities at
reasonable terms to people primarily Muslim provinces
of Mindanao. It operate under the Islamic concept of
banking which is known as Mudraba.
Private non-bank financial intermediaries
The following are the private non-bank financial intermediaries:
 Investment houses
 Investment companies
 Finance companies
 Securities dealers
 Securities broker
 Private insurance companies
 Pawnshops or pawnbrokers
 Non-stock savings and loan associations
 Mutual and building loan associations
 Credit unions
 Trust and pension fund managers
INVESTMENT HOUSES- constitute the largest group in
terms of resources among private non bank financial
intermediaries. They have been exclusively vested with
the guaranteed underwriting function and also offer a
wide array of financial services.
INVESTMENT COMPANIES- primarily engaged in investing,
reinvesting or trading in securities. There are two types of
investment company: Open-end and Close-end
company. Open-end company ( also known as mutual
fund) have no fixed amount of paid-in capital, while
Close-end companies have relatively fixed amounts of
outstanding capital.
FINANCE COMPANIES- either partnership or corporations
which are organized to extend credit to consumers and to
industrial, commercial or agricultural enterprises by
discounting and factoring commercial papers.
SECURITIES DEALERS- companies which buy and sell
securities of others or which acquire to resell or offer them
for sale to the public.
SECURITIES BROKERS- engaged in the business of effecting
transactions in securities for the account of others. They
earn their income from commissions received.
PRIVATE INSURANCE COMPANIES- they are authorized to
conduct life, fire, marine, health and accident insurance.
PAWNSHOPS/PAWNBROKERS- engaged in lending money
on personal property delivered as security, pledge or
collateral.
NONSTOCK SAVINGS AND LOAN ASSOCIATION- provide
short-term loans to members and whose main sources of
income ae savings and time deposits.
MUTUAL AND BUILDING LOAN ASSOCIATION- extend long
term mortgage loans to members.
CREDIT UNIONS- cooperatives composed of small
producers and consumers who voluntarily join together to
from their business enterprises that they themselves own,
control and patronize.
TRUST AND PENSION FUND MANAGERS- Institutional and
personal administration of funds created or constituted for
the benefit of others.
Government Non-Bank Financial Institutions
Social Security System (SSS)
The key task of SSS has been to provide social security
to its members in times of economic need and social
distress. The SSS was organized in 1957 with seed money
of only P500,000.
The SSS administers 2 programs namely:
 The Social Security Program
 Employees’ Compensation (EC) Program
PHILIPPINE STOCK EXCHANGE (PSE)
It is a private organization that provides and
ensures a fair, efficient, transparent and orderly
market for the buying and selling of securities.
On December 23, 1992, a milestone for the
Philippine capital market occurred as Manila Stock
Exchange (MSE) and Makati Stock Exchange (MkSE)
fused to form the Philippine Stock Exchange. But
even with the unification, PSE still remains two trading
floors- one in Makati and the other in its head office in
Pasig City.
Makati Stock Exchange hailed the introduction of the
Maktrade automated trading system, the same system
used by the Stock Exchange of Thailand and which
was developed by the Chicago Stock Exchange.
The MAkTrade System is composed of hardware,
software and network that allow the trading of
securities (equities, warrants, and bonds) in a broker to
broker market.
Trading terminals are also known as Market works
terminals which are PC based and run the Market
works program.
CENTRAL CLEARING AND DEPOSITORY
The Philippine Central Depository (PCD) is primarily
a provider of depository and settlement systems for
securities. A computerized book-entry settlement
system is being utilized, which makes scripless trading
possible.
The Securities Clearing Corporation of the
Philippines is a private institution that acts as a
clearance and settlement agency depository
eligible trades executed in the PSE.
 Thank You.

God bless Us All!!!