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BANKING & FINANCIAL INSTITUTION
MODULE DESCRIPTION:
This course is designed to develop an understanding of financial institutions and financial markets and their
relationship to public policies and management policies. Included are studies of market structure, profit
strategies, relationship of commercial banks and other financial institutions, problems of asset prices.
This is a study of the banking and financial services sector, focusing on their role in the functioning and wellbeing of the economy. This course introduces the importance of financial system and its different institutions
like: Central Bank, Islamic Banks, specialized banks, investment banks and companies, non-banking banking
institutions, international financial institutions. Furthermore, this course provides many banks activities in the
form of local and foreign operations, whether these activities were in the form of direct and indirect facilities,
financial investments or many other banking activities. This course focuses on identifying the nature of bank
sources and its uses also the scope of local as well as foreign banking operations, and the relation between
sources and applications of banks funding also the result of these operations on bank’s financial position.
This is in accordance with the CHED Memorandum Order No. 17 Series of 2017.
SPECIFIC LEARNING OUTCOMES:
At the end of the course, the students are expected to:
CO1: Trace the history, nature, and development of banking and its importance to the growth of the
economy.
CO2: Apply the processes of online banking.
CO3: Analyze the operations and management of banks and other financial institutions.
CO4: Create bank portfolio.
1|Page Banking and Financial Institution
The first established bank in the
Philippines?
Answer:
Bank of the Philippine Islands
(Filipino: Bangko ng Kapuluang Pilipinas, Spanish: Banco de las Islas Filipinas, commonly known as BPI) is a universal
bank in the Philippines.
It is the first bank in both the Philippines and Southeast Asia.
BPI was established on August 1, 1851 as the "El Banco Español Filipino de Isabel II" ('The Spanish-Filipino
Bank of Isabel II'), named after the queen of Spain, Isabella II, the daughter of King Ferdinand VII.
Bank of the Philippine Islands (BPI) is 169 years old this year.
For more viewing experience regarding the first bank in the Philippines, you can visit this link
https://www.youtube.com/watch?v=o0i8T1Up_6Q at YouTube
.
LET’S TRY THIS!
Can you name the one-syllable words that rhyme with
BANK?
eg
TANK
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Banking and Financial Institution
BANK AND BANKING PERSPECTIVES
Historical Perspective of the World
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2000 BC- early banking practices started in the Babylon, credit transactions engaged
evidenced by tablets of clay.
4th Century BC - temples, public bodies and private firms deal in deposits and loaning of
funds.
2nd century A.D- transactions were registered by public notaries.
8th century- bank drafts and checks were in wide use in Assyria.
Medici family ushered in the 2nd period of Florentine financial power.
16th Century- ruled by Fugger Family. John’s Laws financial system almost spelled ruin to
France.
Philippine Banking History
Spanish Era
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16th century that OBras Pias, the first financial institution was organized flourishing galleon
trade between the Philippines and Mexico. Its capital came from pious catholics and funds
were loaned out interest.
Banco Español – Filipino (1828) first established commercial bank performing general
banking functions and partly financed foreign trade. October 17, 1854 it was given a
privilege note of issue. Today its bearing name is Bank of The Philippine Islands ( Banco
delas Islas Filipinas)
Opening of Suez Canal (1869) led to accessibility of European markets.
Chartered Bank of India, Australia, and China establishes branches in the country.
Monte de Piedad (1882) a savings bank.
Banco Peninsular Ultramarino in Madrid – put up a branch in the Philippines in 1853.
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Banking and Financial Institution
American Era
-Banks continue to do business and soon joined by the branches of International Banking Corporation
and the Guaranty Trust Company. Postal Savings bank was also created as parcel to the bureau of post.Banks
established after World War I ,Yokohama Specie bank (1919) , China Banking Corporation (1920), Peoples
Bank and Trust Company and the Mercantile Bank of China (1926).
- Upon establishment of Commonwealth, Netherlands Indische Handels bank opened (1973) The
Philippine bank of Commerce was the first private bank with genuine Filipino capital (1938). In 1939 Bank
of the Commonwealth, Philippine Bank of Communications and the government-owned AgriculturalIndustrial bank commenced commercial banking operations.
Japanese Era
-During the Japanese occupation only Filipino and Japanese-owned banks were given permission to
operate. The Southern Development Bank opened a branch in Manila in (1942) which acted as fiscal agent
of the Japanese government in the Philippines.
Postwar Era
- Presidential Directive, Executive Order 96, invalidated all Japanese occupation deposits. Executive
Order 48 paved the way for the reopening of the pre-war banks. Rehabilitation Finance Corporation was
created by virtue of Republic Act 85 0n January 2, 1947 which took over the functions of the Agricultural
Industrial Bank. In 1948 General Banking Act passed into law. It provided the definitive rules of conduct of
all banking institutions. In1949 Republic Act No. 265 known as Central bank Act was passed. In 1972,
Presidential Decree no. 72 was issued amending Republic act no. 265 in attuned in changing economics. In
1973 Constitution, Presidential decree no. 1801 designated central Bank of the Philippines as the central
monetary authority which was adopted aimed by the 1987 Constitution.
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Banking and Financial Institution
Republic Act No. 7653 or the New Central Bank Act of 1993, governs Philippine banking today. It provides
for the establishment of an independent monetary authority to be known as Bangko Sentral ng Pilipinas (BSP).
The business of banking has changed irreversibly. Developments in technology have more contributions in
these irreversible changes in the banking system. Technology has brought us E-Banking, the provision of
banking services. The devise used to provide e-banking services are called E-money which can be divided
into three groups.
a. Access devices- these allow people to withdraw or deposit cash, transfer funds and pay bills
from their bank accounts without physically going to the banks or writing a check.
b. Card-based products – these are prepaid cards in which funds are stored in electronic form
on a computer chip embedded in cards.
c. Prepaid software products or network money – involve funds that are stored in electronic
form and are transferred over communication networks among participants in network.
Republic Act No. 8791 known as General Banking Law of 2000, institutionalized a certain mass of banking
reforms in the Philippines. It provides regulation of the organization and operation of banks, quasi-banks,
and trust entities.
Republic Act No. 9160 known as the Anti-Money Laundering Act of 2001, was passed into law on 29
September 2001.
On April 19, 2000 the Monetary Board approved the issuance of Circular No. 237, consolidating and
clarifying all existing rules and regulations on mergers and acquisitions. Bank mergers and consolidations
are distinguished as follows:
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Merger- is the absorption of one or more corporations by another existing corporation which
retains its identity and takes over the rights, privileges, franchises, and properties and
assumes all liabilities and obligations of the absorbed corporations.
Consolidation-the union of two or more corporations into a single new corporation, called
the consolidated corporation.
Banks – shall refer to entities engaged in lending of funds obtained in the form of deposits.
Nature Of Banking Business
“Banks makes money out of other people’s money”
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Banking and Financial Institution
Principle of Banking Business
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A certain amount deposited will support several times as much in credit, known as the partial
reserve system.
A greater portion of deposits in commercial banks arises out of the proceeds of loans.
Types of Banks
As to ownership
a. Privately owned- organized and capitalized by private citizens for their profit.
b. Publicly owned- organized by the state and sometimes has a minimum private ownership.
As to place of Incorporation
a. Domestic – incorporated under Philippine Laws. Majority of the stocks are owned by
Filipinos.
b. Foreign- incorporated under laws of other country although the bank might be doing
business in the Philippines.
As to Structure
a. Stock corporation- when they sell shares of stocks to the general public to raise capital.
b. Non-stock Corporations- the organization is on a membership basis. Such as savings and
loans associations.
As to Function
a. Commercial bank – is one that receives demand deposits and gives out short-term loans.
b. Trust company – an institution which deals in fiduciary activities such as administrator of
estates , guardians of minor’s interest, executor of last wills and testaments, registrar and
transfer agent of stocks and bonds and similar activities.
c. Savings Bank- one which primarily receives for safekeeping funds from persons who have
no immediate need for cash and invests these finds in long-term investment.
d. Rural Bank- organized primarily to cater the needs of small farmers, small business, small
cottage industries, and cooperative associations. They also receive deposits and loan out
funds.
e. Development Bank- takes care of giving loans to be used for developing the economy and
may therefore engage in medium and long-term lending. The organization of private
development banks shall be, under the control and supervision of the Development Bank of
the Philippines (formerly Rehabilitation Finance Corporation).
f. Cooperative bank- organized to furnish the credit needs of duly registered and operating
cooperative associations of different kinds.
g. Investment Bank - one which assist government bodies and newly organized corporations
to raise funds for capital through the sale of stocks and bonds.
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Banking and Financial Institution
h. Central Bank- is a bank of banks, as it does not deal directly with the public.
As to Management
a. Unit Bank- one where ownership is concentrated on one corporation which does banking
business independent of others.
b. Group Banking - When a majority portion of stocks of two more banks are held by a holding
company, this is considered as group banking.
c. Branch Banking – is one where there is a head office and two or more branches.
d. Chain Banking – When one or more persons control the activities of banks, it’s known as
chain banking.
Economic Significance of Bank
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A bank facilitates dealings between debtors and creditors because it acts as an intermediary in
the flow of credit funds. It allows others the use of idle funds of the community in productive
activities.
Creates money out of proceeds of loans.
Maintains foreign trade.
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Banking and Financial Institution
Why the State Supervises Banks
-The state does not only supervise
banks, but with the advent of central
banking, it also controls the bank’s
operation.
Reasons:
1. The banks are entrusted with other
people’s money. Mismanagement or
malfeasance in the duties of the board of directors will result to banking failure.
2. The state wants to assure that the banks will perform their functions in the best interest of
their clients through the honest and efficient conduct of their functions.
3. The banks may either abuse their power or use them prudently.
4. The Banks, furthermore, are quasi-public corporations and as in all other corporations of this
calling, the state must exert its restraining influence to safeguard the welfare of its
constituents.
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Banking and Financial Institution