BANKING AND
FINANCIAL
INSTITUTIONS
By:
ROWELL C. MARASIGAN, CPA
JAYSON M. NOVEDA, MBA
Published by:
House of Color Graphics and Services, Inc.
ISBN: 978-621-96052-0-5
1
CHAPTER 1
OVERVIEW OF THE PHILIPPINE
FINANCIAL SYSTEM
Guide Questions
1. What is the importance of a financial system in
a country’s economy?
2. What roles does each of its elements play in
financial systems?
3. How did the current Philippine Financial System
come to be?
Philippine Financial Systems
For a country to survive, it requires proper systems in
place – a proper government, an organized local
community system, a fair healthcare policy, an
accessible educational program etc. One crucial
system that a country needs is a stable financial
system.
A financial system, according to Fohlin (2014), is “the
set of institutions and markets that gathers excess
2
funds
from
savers
–
whether
households
or
businesses – and allocates financial capital to those
with entrepreneurs and other in need of credit.”
Financial systems, in other words, guarantee that all
components are provided with a smooth flow of
funds.
This
interconnected
system
is
institutions,
comprised
markets,
of
complex
instruments,
services, and monetary policies and laws that all work
together for economic development.
In the Philippine setting, the financial system is
comprised of various institutions that collect, process,
maintain, transmit, budget, allocate, and report
finance
data.
These
institutions
include
banks,
pawnshops, the central bank, insurance companies,
the money market, and also includes monetary laws
and policies. The Philippine Financial System is also
heavily influenced by the globally recognized financial
institutions such as the International Monetary Fund,
the World Bank, and multinational banks.
Functions of Financial Systems
Behind a stable economic growth is an effective
financial system. Financial systems launch finances
3
into productive channels, which therefore affects the
progress of the economy. To better understand how it
affects the economy in a major way, below are the
aspect-specific functions of financial systems:
1. Savings. Funds invested in banks via savings
accounts do not remain stagnant – instead, the
cash flows through the other bodies of the
financial system. These are often channelled
into funding production of goods and into the
money market.
2. Liquidity. Without proper systems in place,
stocks,
bonds,
and
other
income-yielding
investments would not be easily cashed out
when needed by the investor.
3. Payment. Current payment collection services
such as credit cards, debit cards, and cheque
issuing provides a convenient process of
paying fees.
4. Risk. Various insurance policies are made
available in the financial market for investors.
These insurance policies lessen the risks
people face for different investments, such as
4
their health, properties, assets, income, and
even their life.
5. Policy. Looking at the bigger picture, financial
systems impact the economy of a country
through affecting interest rates and even
inflation.
Elements of Financial Systems
A financial system is comprised of the following
elements that work together to ensure proper and
smooth allocation of funds.
1. Financial Claims. These are money that, under
specific circumstances, are to be rightfully
received by the investor. Financial claims can
either be a) debts, which are money borrowed
and are to be paid as on obligation, and b)
equities, which are claims of ownership in an
income-generating institution, such as shares
and stocks.
2. Financial Institutions. This element is closely
related with the latter, as these are private or
government institutions whose assets come
mostly from claims.
5
3. Financial Markets. Markets give way into
speedy transactions for claims to be processed.
4. Government Agencies. In the Philippines, laws
on monetary policies are handled by the
Monetary Board of the Central Bank.
5. Laws and Policies. This element of the financial
system is regulated by the government and
therefore
affects
the
whole
economy
depending on how strict the regulations are
put in place.
Development of the Philippine Financial System
Before the organized financial system the Philippines
has today, it had to undergo many different
developments and changes through the course of the
nation’s history. Below is a brief timeline of the
development of the Philippine Financial System.
•
1754 – Fr. Juan Fernandez de Leon started the
first credit institution in the Philippines, the
Obras Pias, which translates to pious works.
•
1764 – Francisco Rodriguez established the
Rodriguez Bank
6
•
1851 – The first Philippine bank, Banco
Espanol-Filipino
de
Isabella
de
II,
was
Suez
Canal
was
opened,
instituted
•
1869
–
The
consequently expanding Philippine trade with
other nations
•
1873 – Branches of the Chartered Bank of
India, Australia, and China were built in Manila
•
1882
–
In
the
height
of
the
Spanish
colonization, British banks ruled the economy.
Nonetheless, Spain was able to establish their
first bank in the Philippines, the Monte de
Piedad.
•
1898 – The Treaty of Paris was signed, giving
way to a free trade between the US and the
Philippines through the Payne Aldrich Act.
•
1902 – The International Banking Corporation
of New York built a branch in the Philippines;
however, in 1915, it was acquired by the
National City Bank of New York.
•
1904
–
The
Postal
Savings
Bank
was
established.
7
•
1906 – The First Agricultural Bank of the
Philippine Government was founded. Ten years
later, it would be transferred to the newly
founded Philippine National Bank.
•
1920s – Chinese banks were built in the
country
•
1942 – Because of the Japanese colonization,
the Philippine National Bank was forced to
close, but was reopened within a few months
under the supervision of the Japanese Military.
Also during the Japanese period, war notes
were circulated, resulting to the worst inflation
in history.
•
1946 – In order to provide rehabilitation to the
war-damaged industries, the Rehabilitation
Finance Corporation was organized. Years
later, it turned into the Development Bank of
the Philippines.
•
1948 – The Central Bank of the Philippines was
created.
8
Structure of the Philippine Financial System
The financial system of the Philippines is majorly
influenced and comprised of banking institutions,
primarily the Bangko Sentral ng Pilipinas. Being the
central bank of the nation, the BSP, as ordered by the
State, is responsible for the regulation of the supply,
cost, and use of money in order to uphold economic
stability. This banking system is consisted of universal
and commercial banks, thrift banks, rural banks, and
cooperative banks, allowing for a system that
provides the option for debts, bonds, and stocks.
Under the Bangko Sentral ng Pilipinas are the
following banking and non-banking institutions:
I.
Banking Institutions
a. Private Banking Institutions
i. Commercial Banking Institutions
1. Expanded
commercial
banks/universal banks
2. Ordinary
commercial
banks
ii. Thrift Banks
9
1. Savings
and
mortgage
banks
2. Private development banks
3. Stock savings and loan
associations
iii. Rural banks
b. Government banking institutions
i. Philippine National Bank
ii. Development
Bank
of
the
Philippines
iii. Land Bank of the Philippines
iv. Philippine Amanah Bank
II.
Non-Bank Financial Institutions
a. Private non-bank financial institutions
i. Investment houses
ii. Investment companies
iii. Financing companies
iv. Securities dealers/brokers
v. Non-stock
savings
and
associations
vi. Building and loan associations
vii. Pawnshops
10
viii. Lending investors
ix. Fund managers
x. Trust companies/departments
xi. Insurance companies
xii. Venture capital corporations
b. Government
non-bank
financial
institutions
i. Government
Service
Insurance
System (GSIS)
ii. Social Security System (SSS)
11
CHAPTER QUIZ NO.1
OVERVIEW OF THE PHILIPPINE FINANCIAL
SYSTEM
NAME
DATE
SECTION
SCORE
PART I. IDENTIFICATION
Instructions. Identify which function or element of
the financial system is being described by the
statements below and write E if it is an element, and
F if it is a function.
_____________ 1. Without proper systems in place,
stocks, bonds, and other income-yielding investments
would not be easily cashed out when needed by the
investor.
_____________ 2. Looking at the bigger picture,
financial systems impact the economy of a country
through affecting interest rates and even inflation.
_____________ 3. Various insurance policies are
made available in the financial market for investors.
12
These insurance policies lessen the risks people face
for different investments, such as their health,
properties, assets, income, and even their life.
_____________
4.
This
is
regulated
by
the
government and therefore affects the whole economy
depending on how strict the regulations are put in
place.
_____________ 5. These are money that, under
specific circumstances, are to be rightfully received by
the investor.
_____________
6.
Current
payment
collection
services such as credit cards, debit cards, and cheque
issuing provides a convenient process of paying fees.
_____________ 7.These are private or government
institutions whose assets come mostly from claims.
_____________ 8. Funds invested in banks via
savings accounts do not remain stagnant – instead,
the cash flows through the other bodies of the
financial system. These are often channeled into
funding production of goods and into the money
market.
13
_____________ 9. Markets give way into speedy
transactions for claims to be processed.
_____________ 10. In the Philippines, laws on
monetary policies are handled by the Monetary Board
of the Central Bank.
PART II. COMPLETION TEST
Instructions. Complete the hierarchy below o the
structure of the Philippine financial system.
I.
Banking Institutions
a.
________________________________
i.
Commercial Banking Institutions
1.
Expanded
commercial
banks/universal banks
2.
ii.
_____________________
___________________________
1.
Savings
and
mortgage
2.
_____________________
banks
14
3.
Stock savings and loan
associations
iii.
b.
___________________________
Government banking institutions
i.
___________________________
ii.
Development
iii.
___________________________
iv.
Philippine Amanah Bank
Bank
of
the
Philippines
II.
_____________________________________
a.
Private non-bank financial institutions
i.
Investment houses
ii.
Investment companies
iii.
Financing companies
iv.
Securities dealers/brokers
v.
Non-stock
vi.
Building and loan associations
savings
and
associations
15
b.
vii.
Pawnshops
viii.
Lending investors
ix.
Fund managers
x.
Trust companies/departments
xi.
Insurance companies
xii.
___________________________
________________________________
i.
Government
Service
Insurance
System (GSIS)
ii.
Social Security System (SSS)
PART III. ESSAY
Instructions. Answer the following guide questions
in 5-6 sentences.
1.
What is the importance of a financial system in
a country’s economy?
___________________________________________
___________________________________________
16
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2.
What roles do each of its elements play in
financial systems?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
3.
How did the current Philippine Financial System
come to be?
___________________________________________
___________________________________________
17
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
18
CHAPTER 2
BANGKO SENTRAL NG PILIPINAS
(BSP)
Guide Questions
1. Why was the concept of a Central Bank born in
the Philippines?
2. What reforms in central banking were included
in the New Central Bank Act?
3. How does the Bangko Sentral ng Pilipinas
function in the whole finance industry?
The Development of Central Banking in the
Philippines
As previously discussed, central banks are financial
institutions whose power to regulate supply, cost, and
use of funds is vested upon by the State in order to
ensure economic stability. Southern Asian countries
established central banks shortly after World War II,
which is the same case the Philippines. The system of
central banking was conceptualized in the Philippines
19
as early as 1933 by a group of Filipinos. It was
organized in the same way as that of Paraguay and
Guatemala’s central banking system as the Philippines
ran on the same export economy.
It was during the Commonwealth period when the
idea of a establishing a Philippine Central Bank
sparked. Back then, the country’s monetary system
was supervised by the Department of Finance and the
National Treasury. Establishing a central bank would
be beneficial in promoting rice stability and economic
growth. It was in 1939 when a monetary law
establishing a central bank was passed by the
Philippine legislature, as it was required by the
Tydings-McDuffie Act. However, this first attempt was
disapproved by then US President Franklin D.
Roosevelt. A second attempt for central banking was
made during the Japanese occupation, which was
also discarded when the American liberalization forces
came.
In 1946, President Manuel Roxas instructed then
Finance Secretary Miguel Cuaderno, Sr. to draft a
legislation creating a central banking system for the
country. The realization of a central bank became
20
imperative a year later as recommended by the
results of a study conducted by the Joint PhilippineAmerican Finance Commission headed by Cuaderno.
The
same
study
also
recommended
that
the
Philippines should shift to a self-regulated currency
system.
A draft legislation establishing a central bank was
produced by the Central Bank Council, and was then
submitted
to
Congress
for
review in February of 1948. It
was June of the same year
when newly-elected President
Elpidio Quirino signed Republic
Act No. 265, the Central Bank
Figure 1 The Central
Bank of the
Philippines logo
Act of 1948.
History of the Bangko Sentral ng Pilipinas
Years after the Central Bank was established, changes
were made to the law as required by the current
necessities of the economic situation. In 1972, results
of a new study of the Philippine banking system were
released, proposing a change in the system’s scope,
21
objectives, and procedures for
financial
institutions.
These
recommendations were adopted
through Presidential Decree No.
72 was signed on 29 November
of the same year.
Several changes were made to
enhance the authority of the
Central
Bank,
enactment
of
including
Figure 2 The Bangko
Sentral ng Pilipinas
logo
the
Presidential
Decree
1801,
which
designated the Central Bank as the central monetary
authority in the country. Years later, on 14 June
1993, President Fidel V. Ramos signed into law the
Republic Act No. 7653, entitled the New Central Bank
Act. This law paved the way for the foundation of the
Bangko Sentral ng Pilipinas, an independent monetary
authority whose primary goal is to provide price
stability nationwide, an objective that was only
implied in the policies included in the old Central Bank
Act.
RA
No.
7653
also
provides
fiscal
and
administrative autonomy to the BSP, a power not
included in the old act. The New Central Bank Act
took effect on 3 July 1993.
22
Objectives and Functions of the Bangko Sentral
ng Pilipinas
According to the New Central Bank Act of 1993, the
BSP’s main objective is to maintain price stability
conducive to a balanced and sustainable economic
growth. It also aims to promote and preserve
monetary stability and the convertibility of the
national currency. The creation of the BSP also
founded the BSP Monetary Board, which is the policymaking body of the bank. It is administered by a
Governor, who also acts as the Chairman of the
Board, together with five members coming from the
private sector and one member for the cabinet. The
Monetary Board is responsible for delegating tasks to
accomplish the following functions of the Bangko
Sentral:
1. Liquidity Management. The Bangko Sentral
implements monetary policies in accordance to
its primary objective of price stability, including
policies on money supply.
2. Currency issue. The power to issue national
currency, including all notes and coins, belongs
to the BSP. Once authorized by the BSP, these
23
notes and coins are considered legal tender for
all public and private debts.
3. Lender of last resort. Banking institutions can
request for loans, discounts, and advances
from the BSP for liquidity purposes.
4. Financial Supervision. Supervision of banking
institutions and regulation of non-banking
institutions fall under the authority of the BSP.
5. Management of foreign currency reserves. In
order to preserve international stability and
convertibility of the Philippine Peso, the BSP
maintains enough international reserves to
meet any possible net demands for foreign
currencies.
6. Determination
of
exchange
rate
policy.
Exchange rate policies are determined by the
BSP. Presently, the BSP follows a marketoriented foreign exchange rate policy, reducing
the BSP’s role into ensuring a stable market.
7. Other activities. The BSP also plays other roles
such as that of a banker, a financial advisor,
and official depository of the Government.
24
CHAPTER QUIZ NO.2
BANGKO SENTRAL NG PILIPINAS
NAME
DATE
SECTION
SCORE
PART I. IDENTIFICATION
Instructions. Identify which vital part of the
development of central banking and the history of the
Bangko Sentral ng Pilipinas is described in the
following statements.
_____________ 1. In 1972, results of a new study of
the
Philippine
banking
system
were
released,
proposing a change in the system’s scope, objectives,
and procedures for financial institutions. These
recommendations were adopted through this decree.
_____________ 2. This law paved the way for the
foundation of the Bangko Sentral ng Pilipinas, an
independent monetary authority whose primary goal
is to provide price stability nationwide.
25
_____________ 3. This decree designated the Central
Bank as the central monetary authority in the country
_____________ 4. Financial institutions whose power
to regulate supply, cost, and use of funds is vested
upon by the State in order to ensure economic
stability.
_____________ 5. Back in the Commonwealth Period,
the country’s monetary system was supervised by this
department.
_____________ 6. This act required the Philippine
legislature to pass a monetary law establishing a
central bank.
_____________ 7. He drafted a legislation creating a
central banking system for the country.
_____________ 8. He signed Republic Act No. 265,
the Central Bank Act of 1948.
_____________ 9. The New Central Bank Act took
effect on this date.
_____________ 10. He disapproved the first attempt
of the Philippine legislation for central banking.
26
PART II. ILLUSTRATION
Instructions. Illustrate the objectives of the Bangko
Sentral ng Pilipinas.
27
PART III. ESSAY
Instructions. Answer the following guide questions
in 5-6 sentences.
1.
Why was the concept of a Central Bank born in
the Philippines?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2.
What reforms in central banking were included
in the New Central Bank Act?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
28
___________________________________________
___________________________________________
___________________________________________
___________________________________________
3.
How does the Bangko Sentral ng Pilipinas
function in the whole finance industry?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
29
CHAPTER 3
BANKING INSTITUTIONS: BANKS
AND BANKING PERSPECTIVES
Guide Questions
1. What are the highlights of the history of
banking, and why was there a need to develop
the concept of such?
2. In comparison, how does the old Philippine
banking ways differ from banking today?
3. What is a bank’s importance in the nation’s
economy?
4. Why does the government supervise the
banking industry?
History
of
Banking:
An
International
Perspective
Along with the advancement of the world trade and
urbanization came the need for a way to link and
track the financing of different industries. For
international banking to be established, it requires
30
civilizations who follow rules of law and have stable
governments.
The
concept
of
banking
became
imperative once the early civilizations developed the
global economy, especially in the aspects of trade,
industrial development, and infrastructure.
Below are the important highlights of the history of
banking worldwide:
•
Code of Hammurabi – A code dating back from
the peak of the Babylonian Empire, the Code of
Hammurabi, contained 150 paragraphs on the
principles of lending. This includes paragraphs
on interests, loans, pledges, and guarantee
procedures.
•
Chinese currency – Standardized coins were
introduced during the Qin Dynasty and opened
a new and easier way of trade in the country.
This later paved the way for the development
of letters of credit.
•
Egyptian
granaries
–
The
first
known
governmental banks were grain banks from
early
Egypt,
where
grains
functioned
as
money. All the scattered grain banks were
31
centralized in Alexandria, where all records are
tracked and stored.
•
Greek treasuries – The ancient Grecian society
performed financial transactions within temples
where their treasures are kept safe. By the end
of the 7th century BC, the first treasury was
built to the Apollonian temple.
•
Roman money-lending and formalized banking
– Roman banks mostly offer money-lending to
its people. It was in Rome where the term
“bank” originated: from the Roman word
“bancu”, a long bench where money-lenders
would sit inside set up stalls within enclosed
courtyards. The Roman Empire formalized
banking in its administrative aspects and
regulated
its
institutions
and
practices.
However, the concept of banking came to a
pause along with the fall of the Roman Empire.
•
Merchant Banks of the Middle Ages. Merchant
banks are considered as the first modern
banks, and primarily focused on the trade of
commodities.
Originally,
merchant
banks
32
started with Italian grain and cloth merchants
and started to develop in the 11th century.
•
Modern Banking – Modern banking developed
by the end of the 16th century and the start of
the 17th century. By the end of the latter, the
world would see the development of central
banks
and
the
start of
regulation
from
governments. The Bank of England was the
first bank to issue actual bank notes in 1695.
The Industrial Revolution came, and along with
it, a growing international trade. This led to an
increase in the number of banks operating in
London.
•
Rothschilds – In the early 19th century, the
Rothschild family gave loans to the Bank of
England, pioneering the onset of international
finance. The family is instrumental in the
completion of the Suez Canal and has founded
several financial institutions that are still
present and influential today, such as the Royal
& SunAlliance.
•
The
World
Bank
and
the
International
Monetary Fund – After the Second World War,
33
these two banks were established to further
the functions of commercial banks worldwide.
•
Retail Banking, Automatic Teller Machines, and
electronic payment systems – These modern
day banking services were also introduced
post-World War II.
History of Philippine Banking
Since the financial system of the Philippines is mostly
ran by a banking system, the development of the
main financial system is almost the same as the
history of Philippine Banking. Below is a detailed
timeline of the aforementioned development of
banking in the Philippines:
•
In the 16th century, the Obras Pias was
established by laymen of religious orders. It
was funded by donations of the wealthy
families and individuals, with the primary
objective of providing credit and funding
mortgage loans, the Acapulco trade, and
maritime insurance. The income generated
from
Obras
construction
Pias
were
utilized
of
churches,
in
the
government
34
buildings, and other projects of the religious
order.
•
During the 19th century, the first Philippine
banks emerged, and among these is the
Rodriguez bank. Although labelled as a bank,
the Rodriguez bank played the role of a loan
association.
•
On 1 August 1851, the Junte de Autoridades
(board of authorities) concluded that there was
a need to establish a state bank in the country,
which led to the opening of Banco EspanolFilipino de Isabel II. This state bank was
provided 50% of its capital by the Obras Pias.
•
In 1869, the Suez Canal opened, signalling an
expanded trade between the Philippines and
the West. As a result, in 1873, British-Orient
banks opened in the country.
•
In
1872,
the
Chartered
Bank
of
India,
Australia, and China opened in Manila. Three
years
after,
the
Hongkong
and
Shanghi
Banking Corporation opened a branch in
Manila.
35
•
With initial capital still provided by the Obras
Pias, the first mutual savings bank Monte de
Piedad Y Caja de Ahorros opened in 1882. The
bank later changed its name to Monte De
Piedad and Savings Bank.
•
In 1 January 1912, the first state bank
changed its name to the Bank of the Philippine
Islands. This makes BPI the oldest bank in
Philippine history. BPI also built connections
with banks in the West to service clients
around the world.
•
In
1906,
the
Postal
Savings
bank
was
established.
•
In 1916, the Philippine National Bank was
organized. The PNB also
adopted the assets and
liabilities
of
the
first
agricultural bank in the
country
which
was
opened in 1908.
•
The Central Bank of the
Philippines
Figure 3 The
Philippine National
Bank logo
was
established a few years after the culmination of
36
the American occupation, along with the
establishment of an independent monetary
system.
Philippine Banking Today
Every two semesters of each year, the Bangko
Sentral ng Pilipinas releases a report on the
Philippine
Financial
System.
In
the
second
semester of 2017, the Philippine banking system
had a stable and strong growth when it comes to
the macroeconomic environment. The report also
conveyed that the banking system is exerting as
much effort as possible in trying to provide
financial services to the whole country, with a
record network of 587 head offices and 11,206
other offices by the end of December 2017.
The Philippine banking system has also taken
advantage of the onset of technology in the field
of banking. In the report made by the BSP, there
are 23 banks offering mobile banking service, 18
banks offering phone banking, 45 banks offering
internet banking, 30 banks that are electronic
money issuers, and 23 banks offering mobile
37
banking through phone applications. Banks have
also utilized the use of social media in marketing
their financial services, a platform that has a huge
marketing potential but is also tied to huge risks.
Principles of Banking Business
Commercial banks are the most common type of
bank there is. These banks cater to all individuals
wanting to avail of different financial services.
Commercial banks follow the following basic
principles in its operation:
•
Principle of Liquidity. A commercial bank
should be able to convert invested assets
into cash as fast as possible when the
customer demands for it.
•
Principle of Solvency. In order to maintain
stable
operations,
a
commercial
bank
should have sufficient capital. Commercial
banks are funded by depositors, therefore it
is their job to ensure the safekeeping of
deposited funds.
•
Principle of Profitability. A commercial bank
is a for-profit organization, profits which
38
they
gain
through
providing loans
to
investors with interest rates.
•
Principle of Loan and Investment. As
mentioned, commercial banks rely on loans
for profit. Aside from this, commercial
banks also gain profit through investing in
businesses.
•
Principle of Savings. Savings facilities also
allow commercial banks to gain funding and
capital. The more savings deposited in a
commercial bank, the more profit and fund
there is.
•
Principle of Service. These banks offer only
the best services to its customers, as the
success of the whole bank relies on the
success of its customer service.
•
Principle
of
Secrecy.
Depositors
and
customers trust banks for the safety of not
only their hard-earned money, but also of
their privacy, as banks collect personal
information from its customers. Breaches of
security and hacking of accounts can lead
39
to customers backing out and cancelling
accounts.
•
Principle of Efficiency. An efficient business
operation makes for satisfied customers.
Employees of commercial banks should be
given proper training and familiarization of
the banking system in order to give its
customers a competitive service style.
•
Principle of Location. A good location is one
that
attracts
possible
depositors
and
investors. A good location should also be
accessible by all types of customers, and
should follow safety procedures.
Types of Banks
Banks make up the majority of the Philippine financial
system, with the Bangko Sentral ng Pilipinas on its
lead. The financial system consists of universal banks,
commercial banks, thrift banks, rural banks, and
cooperative banks.
•
Universal and commercial banks. This type of
bank represents majority of the banks present
in the Philippines today. With a wide variety of
40
banking services to offer, these banks also
have the widest target customer range.
•
Commercial banks. This type of bank takes in
deposits and offers business loans. Banks of
commercial nature provides a variety of deposit
accounts, including savings, checking, and time
deposit accounts. Commercial banks are forprofit institutions, making profit from providing
loans
and
maintaining
a
capital
through
deposited funds.
•
Thrift banks. Under thrift banks are savings
and mortgage banks, private development
banks, stock savings and loan associations,
and microfinance thrift banks. The primary
objective of thrift banks is to make the savings
of depositors grow by investing in them. Thrift
banks also provide funding for businesses,
especially the small and medium enterprises.
•
Rural and cooperative banks. This type of bank
provides
financial
communities.
services
Cooperative
to
the
rural
banks
offer
assistance to farmers in every stage of
production. The difference between rural banks
41
and cooperative banks is that rural banks are
privately owned, while cooperative banks are
built by members of a federation.
Economic Significance of Banks
A strong banking system is essential to a stable
economic growth. These financial institutions are
responsible for the circulation of all the funds of the
country, therefore affecting the economy directly.
Banks serve as financial intermediaries through
accepting funds deposited and investing or lending it
to individuals or businesses in need of credit. The
money-lending power of banks is crucial in the
continuance of operations in production, trade, and
employment. Aside from lending funding to business
enterprises, banks also lend money to ordinary
citizens short in finances for personal consummation,
such as through the form of car loans or house loans.
Supervision of Banks
With the wide network of financial institutions
included in the Philippine financial system, it is only
proper that they are supervised and governed by the
42
highest power: the State itself. Regulation and
supervision of banks rely on laws and policies enacted
by the government, a concept that became a
necessity when the banking system became too
complex, funds were not being allocated properly,
and affluent families were profiting off of it.
In 1993, Republic Act No. 7653, the New Central
Bank Act, authorized the government through the
Bangko Sentral ng Pilipinas to supervise and regulate
the
operations
of
banking
institutions
in
the
Philippines. This serves as a legal basis for a
consolidated supervision. Seven years later in the
year 2000, Republic Act No. 8791 or the General
Banking Law of 2000 endorsed the shift to a riskbased approach instead in order to keep up with the
growing banking businesses.
43
CHAPTER QUIZ NO.3
BANKING
INSTITUTIONS:
BANKS
AND
BANKING PERSPECTIVES
NAME
DATE
SECTION
SCORE
PART I. IDENTIFICATION
Instructions. Identify which part of the history of
banking, both worldwide and in the Philippines, is
being described.
_____________ 1. This committee concluded that
there was a need to establish a state bank in the
country, which led to the opening of Banco EspanolFilipino de Isabel II.
_____________ 2. After the Second World War, these
two banks were established to further the functions of
commercial banks worldwide.
_____________ 3. These are considered as the first
modern banks, and primarily focused on the trade of
commodities.
44
_____________ 4. A code dating back from the peak
of the Babylonian Empire containing 150 paragraphs
on the principles of lending.
_____________ 5. It was established by laymen of
religious orders and was funded by donations of the
wealthy families and individuals, with the primary
objective of providing credit.
_____________ 6. The first mutual savings bank that
opened in 1882.
_____________ 7. This family gave loans to the Bank
of England, pioneering the onset of international
finance.
_____________ 8. A Roman word where the word
“bank” originated from, which means a long bench
where money-lenders would sit inside set up stalls
within enclosed courtyards.
_____________ 9. The first known governmental
banks from early Egypt where grains functioned as
money.
_____________ 10. It is the first state bank of the
Philippines.
45
PART II. COMPLETION
Instructions. Complete the table with descriptions
of the following principles of the banking business.
Principle of Liquidity
Principle of Solvency
Principle of Profitability
Principle of Loan and
Investment
Principle of Savings
Principle of Service
46
Principle of Secrecy
Principle of Efficiency
Principle of Location
PART III. ESSAY
Instructions. Answer the following guide questions
in 5-6 sentences.
1.
What are the highlights of the history of
banking, and why was there a need to develop the
concept of such?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
47
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2.
In comparison, how does the old Philippine
banking ways differ from banking today?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
3.
What is a bank’s importance in the nation’s
economy?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
48
___________________________________________
___________________________________________
___________________________________________
___________________________________________
4.
Why does the government supervise the
banking industry?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
49
CHAPTER 4
GOVERNMENT BANKING
INSTITUTIONS
Guide Questions
1. What is the primary objective of the creation of
the Land Bank of the Philippines?
2. Why was the Development Bank of the
Philippines established?
3. What
was
the
purpose
behind
the
establishment of the Al-Amanah Islamic Bank?
Government Banking Institutions
Banks under the supervision and regulation of the
government are primarily aimed at providing credit
loans
and
financing
to
agriculture
to
rural
entrepreneurs. These banks have given credit support
to key players of the economy, especially the major
industries of construction, agriculture, and mining.
50
Land Bank of the Philippines
The Land Bank of the Philippines is the largest creditproviding institution in the rural areas of the country.
It is a government financial
institution that performs two
functions: providing financial
services to the rural areas
while
remaining
viable.
Initially,
financially
it
was
Figure 4 The Land Bank of the
Philippines logo
created as the financing arm of the Agrarian Reform.
As it progressed as a bank, it has transformed into a
full-service commercial bank.
Republic Act 3844, also known as the Agricultural
Land Reform Code, paved the way for the creation of
the Land Bank of the Philippines. Signed on 8 August
1963, the act created the Land Bank tp provide
financing to the acquisition and distribution of
agricultural estates for distribution or reselling. It was
put under direct supervision of the Bangko Sentral ng
Pilipinas, and was administered by a board of
trustees, which includes a Chairman (the CEO of the
bank), the Head of the Department of Agrarian
Reform, and two more elected members. The
51
chairmanship was transferred to the Secretary of
Finance in the amendments raised in 1966.
The Land Bank of the Philippines enjoys tax
exemption on all operations, equipment, property,
and income, and is also exempt from cash payments
to the State.
With Presidential Decree No. 27, also known as the
Tenant Emancipation Act signed 21 October 1972,
tenant-farmers of private agricultural lands were
emancipated under a system of lease-tenancy. The
Land Bank of the Philippines was then instructed to
collect
15-year
land
amortizations
from
the
beneficiaries and a 6% interest per annum.
In July of 1973, the Land Bank of the Philippines was
granted a universal or expanded commercial banking
powers through Presidential Decree 251. It gave the
bank an explicitly stated objective of spreading its
social mission while continuing development and
support of the countryside industries. The bank
continued to provide subsidies to small-time farmers
and fish folk, while also expanding its powers to also
lend credit support to agricultural, industrial, homebuilding, or home-financing projects. The Presidential
52
Decree also expanded the tax exemption of the Land
Bank to exemption from all national, provincial,
municipal, and city taxes. In 1977, the Land Bank of
the Philippines organized three major sectors within
it: Agrarian, Banking, and Operations.
Executive Order 229 of July 1987 led to the creation
of the Presidential Agrarian Reform Council, the
council to oversee the Comprehensive Agrarian
Reform Program. According to this Executive Order,
the Land Bank of the Philippines is to provide
assistance
to
landowners
through
investment
information and counselling assistance. In 1988, the
LBP was established as the financial intermediary of
the Comprehensive Agrarian Reform Program through
the Republic Act 6657. Two years later, the primary
responsibility of determining land valuation and
compensation for all lands under the Comprehensive
Agrarian Reform Program was transferred to the LBP
through Executive Order 405.
The Land Bank of the Philippines Charter was
amended in 23 February 1995 through Republic Act
7907, wherein the authorized capital allowed for the
bank was increased to 9 billion Php. It was also
53
through this act that the LBP was recognized as an
official
government
depository.
By
1998,
the
authorized capital for the bank was increased to 25
billion Php.
The Land Bank of the Philippines currently offer the
following financial services:
•
Regular savings account
•
Regular Current Account
•
Savings Account with ATM Access
•
Current Account with ATM Access
•
Regular Peso EASY Check
•
Peso EASY Check with ATM Access
•
Regular Time Deposit
•
Land Bank Cash Card
•
OFW Cash Card
•
E-Tax Payment System
•
Land Bank VISA Card
•
iAccess Retail Internet Banking
Development Bank of the Philippines
The Development Bank of the Philippines is another
government banking institution that is currently
tasked with the expansion and growth of the
54
agricultural industry and the establishment of private
development banks.
Created through Republic Act No.
85, the Development Bank of the
Philippines was originally known
as
the
Rehabilitation
Finance
Corporation. Its primary objective
is to provide credit facilities for
the
rehabilitation
Figure 5 The
Development Bank of
the Philippines logo
and
development and expansion of agriculture, and
industry, the reconstruction of property damaged by
war, and the broadening and diversification of the
national economy, and to promote the establishment
of private development banks in provinces and cities.
Under this law, the Development Bank of the
Philippines has the following corporate powers:
•
To grant loans for home building or home
financing projects and for the rehabilitation,
establishment
or
development
agricultural
and/or
industrial
including
public
utilities,
mining,
of
any
enterprise,
livestock
industry and fishing, whether offshore or
inland;
55
•
To purchase preferred redeemable shares of
stock, securities, other than shares of stock,
and obligations of, and to grant loans to, any
agricultural
and
industrial
enterprises
mentioned in paragraph (a) to finance their
fixed and operating capital requirements.
•
To grant loans to provincial, city and municipal
governments
construction
for
or
the
rehabilitation,
reconstruction
of
public
markets, irrigation, waterworks, toll bridges,
slaughterhouses, for cadastral surveys and
other
self-liquidating
or
income-producing
services, or the purchase and acquisition and
machineries and to agencies and corporations
owned or controlled by the Government of the
Republic of the Philippines for the production
and distribution of electrical power, for the
purchase and subdivision of rural and urban
estates, for housing projects, for irrigation and
waterworks system, and for other essential
industrial and agricultural enterprises;
56
•
To grant loans to cooperative associations to
facilitate production, the marketing of crops,
and the acquisition of essential commodities;
•
To grant loans to individual employees in a
government-owned or controlled corporation or
private
corporation
engaged
in
the
development and/or expansion of agriculture
or industry, for the purpose of buying shares of
stock directly from such corporation for the
purpose of enabling them to participate in the
ownership and to share in the profits thereof;
•
To underwrite, purchase, own, sell, mortgage
or
otherwise
dispose
of
stocks,
bonds,
debentures, securities and other evidences of
indebtedness issued for or in connection with
any project or enterprise;
•
To
issue
collaterals,
bonds,
and
debentures,
other
securities,
obligations
and/or
renewal or the refunding of the same upon the
recommendation of the Secretary of Finance
and with the approval of the President, but in
no case to exceed at any one time an
57
aggregate amount equivalent to ten times of
its paid-in capital and surplus.
(Source: Republic Act No. 85 - An Act Creating the
Rehabilitation Finance Corporation)
The Development Bank of the Philippines was granted
an authorized capitalization of three billion pesos. The
act also pushes for the establishment of private
development banks in provinces and cities, and
further classified development banks into three
classes according to its required paid-up capital:
Class A
At least four million pesos
Class B
At least two million pesos
Class C
At least one million pesos
Figure 6 Classes of Development Banks
Private development banks established under RA No.
85 will be have the same name as the province or city
it is in, followed by the words “Development Bank”.
58
Al-Amanah Islamic Bank
Created under Presidential Decree No. 264, the AlAmanah Islamic Bank, also known as the Philippine
Amanah
Bank,
founded
to
was
promote
socio-economic growth
in Mindanao. It is the
first and only Islamic
Figure 7 The Al-Amanah
Islamic Bank logo
Bank in the country.
According to PD No. 264 of August 1973, studies led
by the government have concluded that there is a
pressing need to magnify the banking and credit
scene in the Mindanao region to make it more
receptive to investments and credit requirements. The
Philippine Amanah Bank was then created to provide
credit, commercial, development and savings banking
services mostly to the Muslim provinces in Mindanao,
specifically the following provinces: Cotabato, South
Cotabato, Lanao del Sur, Lanao del Norte, Sulu,
Basilan, Zamboanga del Norte, Zamboanga del Sur
and Palawan. This objective will aid in meeting the
government’s goal of establishing expansion of
59
agricultural, commercial, and industrial enterprises in
the region.
The Al-Amanah Islamic Bank has the following
corporate powers:
•
to accept savings and time deposits, and open
current or checking accounts;
•
to borrow money; to own real or personal
property and to sell, mortgage or otherwise
dispose of the same;
•
to
employ
such
officers
and
personnel,
preferably from the Muslim population in
Mindanao and Palawan as may be necessary to
carry on its business;
•
to establish such branches and agencies in the
dominantly Muslim provinces in Mindanao and
Palawan and such correspondent officers in
other areas as may be necessary for the proper
conduct of its business;
•
to
grant
loans
for
the
establishment,
acquisition, development and expansion of any
agricultural,
commercial
and/or
industrial
enterprises, including public utilities, mining,
60
livestock and poultry and fishing, whether offshore or inland;
•
to invest in equities of allied undertakings as
pertinent laws and the Central Bank shall
authorize;
•
to carry on trust business in accordance with
the
provisions
of
law
governing
trust
corporations;
•
to
issue
bonds,
debentures,
securities,
collaterals and/or the renewal or refinancing of
the same with the approval of the Central
Bank, to be used by the bank in its lending
operations
projects
for
that
industrial
will
and
promote
agricultural
the
economic
development of the region;
(Source: Presidential Decree No. 264 - An Act
Creating A Philippine Amanah Bank)
The presidential decree authorized the Philippine
Amanah bank to a capital of one hundred million
pesos divided into one million par value shares of one
hundred
pesos
each.
The
shares
are
further
categorized into four classes:
61
shall comprise thirty million pesos
equivalent to three hundred thousand
Series A
common shares to be subscribed by
the Government of the Republic of the
Philippines
shall comprise twenty million pesos
equivalent to two hundred thousand
Series B
preferred
shares
which
shall
be
subscribed by the government of the
Republic
of
the
Philippines,
its
agencies or instrumentalities
shall comprise thirty million pesos
equivalent to three hundred thousand
common shares to be subscribed
Series C
solely by the citizens of the Philippines
and
domestic
corporations
and
entities, seventy per centum of the
equity of which is owned by Citizens of
the Philippines
shall comprise twenty million pesos
Series D
equivalent to two hundred thousand
common
shares
which
shall
be
available for subscription of foreign
62
nationals, their corporations and/or
associations.
Figure 8 Classes of Par Value Shares
In 1974, Presidential Decree No. 542 ordered the
bank to follow the Islamic banking principle “no
interest”. Despite of this, the bank still lacked the
support and patronization of the Islamic population in
the country, making it less viable than its other
commercial competitors. Nonetheless, in 1990, the AlAmanah Islamic Bank became categorized as a
Universal Bank through enactment of Republic Act
No. 6848, giving the bank an authorized capital of
one billion pesos. This time, the primary mandate of
the act is for the Al-Amanah bank aid in the socioeconomic development of the Autonomous Region of
Muslim Mindanao through utilizing Islamic banking
principles. The Philippine Amanah bank managed to
continue its course under the Bureau of Treasury,
until 2008 came. In 30 October of 2008, the
Development
Bank
of
the
Philippines
bought
ownership of the Philippine Amanah Bank, now
owning 99.9% through acquiring the stocks of the
likes of SSS and GSIS.
63
The Development Bank of the Philippines officially
took over the Philippine Amanah Bank on 16 July
2008.
64
CHAPTER QUIZ NO.4
GOVERNMENT BANKING INSTITUTIONS
NAME
DATE
SECTION
SCORE
PART I. IDENTIFICATION
Instructions. Write LBP if the statement refers to
the Land Bank of the Philippines, DBP is it refers to
the Development Bank of the Philippines, and AIS if it
refers to the Al-Amanah Islamic Bank.
_____________ 1. This bank was founded to promote
socio-economic growth in Mindanao.
_____________ 2. This bank is currently tasked with
the expansion and growth of the agricultural industry
and the establishment of private development banks.
_____________ 3. This bank was originally known as
the Rehabilitation Finance Corporation.
_____________ 4. This bank is the largest creditproviding institution in the rural areas of the country.
65
_____________ 5. Initially, this bank was created as
the financing arm of the Agrarian Reform.
_____________ 6. In July of 1973, this bank was
granted a universal or expanded commercial banking
powers through Presidential Decree 251.
_____________ 7. This bank can grant loans to
cooperative associations to facilitate production, the
marketing of crops, and the acquisition of essential
commodities;
_____________ 8. This bank can grant loans for
home building or home financing projects and for the
rehabilitation, establishment or development of any
agricultural and/or industrial enterprise
_____________ 9. This bank can employ such
officers and personnel, preferably from the Muslim
population in Mindanao and Palawan as may be
necessary to carry on its business;
_____________ 10. This bank was authorized to a
capital of one hundred million pesos divided into one
million par value shares of one hundred pesos each.
66
PART II. ESSAY
Instructions. Answer the following guide questions
in 5-6 sentences.
1.
What is the primary objective of the creation of
the Land Bank of the Philippines?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2.
Why was the Development Bank of the
Philippines established?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
67
___________________________________________
___________________________________________
___________________________________________
___________________________________________
3.
What
was
the
purpose
behind
the
establishment of the Al-Amanah Islamic Bank?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
68
CHAPTER 5
COMMERCIAL BANKS
Guide Questions
1. What
are
the
powers
of
an
ordinary
commercial bank?
2. What powers are added into an expanded
commercial bank?
3. How do ordinary and expanded commercial
banks differ in organization and capitalization?
4. How do commercial banks operate on different
facets?
The General Banking Law of 2000
On 23 May 2000, the Republic act No. 8791 was
signed into law by then President Joseph Ejercito
Estrada. The act, also known as An Act Providing for
the Regulation of the Organization and Operations of
Banks, Quasi-banks, Trust Entities and for Other
Purposes, recognizes the role of banks in sustaining
and stabilizing the national economy. The act
69
promotes efficient banking in Philippine financial
institutions that could be at par with that of globally
known banks.
The General Banking Law classified banks into seven
types:
•
Universal Banks
•
Commercial Banks
•
Thrift Banks
•
Rural Banks
•
Cooperative Banks
•
Islamic Banks
•
Other classifications as determined by the
Monetary Board
Ordinary Commercial Banks and its Powers
Commercial banks are financial institutions that grant
mainly short-term loans. These banks are accessible
to all kinds of people in need of financial service.
Commercial banks accept deposits from the public
and lend funds to parties in need.
A commercial bank possesses the following general
powers:
70
•
Accepting deposits – This is a commercial
bank’s most vital service. Money deposited in
commercial banks earn interest, and the higher
the interest rate, the more motivated people
are to deposit their funds in banks.
o Current deposits – Also known as
demand deposits, this type of deposits
can be withdrawn anytime. Customers
are required to have a maintaining
balance in these accounts, and no
interest rate is offered. Withdrawing
balances in current accounts go through
cheques and not direct cash withdrawal.
Current deposit accounts usually are
utilized by businessmen.
o Savings deposit – Usually availed by
professionals
and
middleclass
men,
savings deposit accounts are easy to
open and easy to maintain. However,
there is a limit in the amount of money
that can be withdrawn in a day or in a
week, depending on the bank’s policies.
Interest rates of savings accounts are
71
greater than that of current deposit, but
less than that of fixed deposits.
o Fixed deposits – Also known as time
deposits,
money
in
fixed
deposits
accounts cannot be withdrawn until the
expiration of the period set to grow the
balance. Should a customer need to
withdraw funds from this deposit prior
the specified date, he would have to
borrow under the security of his account
and would be required to pay with a
higher interest rate.
•
Grants of loans – Commercial banks have the
authority to grant loans to the public with
interest rates depending on the purpose of the
loan, the period, and the mode of repayment.
Loans can be withdrawn in the entire amount
or in instalments, but the interest rate is placed
on the full amount.
•
Grant of advances – Commercial banks offer
credit facilities to its customers. Advances are
also funds lent to the public, but only for a
short period of time. Interest rates placed on
72
advances depends on the bank itself. There are
also different types of short-term advances:
o Cash credit – this is a financial service
offered by banks which allows the public
to withdraw amounts up to a specified
limit, and interest rates depend on the
actual amount withdrawn.
o Overdraft – Overdrafts are offered to
customers with a checking account in
banks. This service allows them to
withdraw cash that is more than the
credit balance reflected in their account.
o Discounting of bills – This service allows
the public to pay an amount before due
dates
of
bills
after
a
discount
is
deducted.
•
Creation of Credit – another function of
commercial banks is creating credit, or simply,
manufacturing money.
•
Use of Cheques – Cheque transactions is
another service offered by commercial banks,
which is a cheaper medium of transaction. It
73
also
provides
the
public
a
much
more
convenient way to settle debts and payments.
•
Financing Internal and Foreign trade – Banks
finance internal and foreign traders through
discounting of exchange bills.
•
Remittance of Funds – Commercial banks also
offer remittance service, or the capability to
remit funds from one place to another through
bank drafts, mail transfers, or telegraphic
transfers. It is also a cheaper money-transfer
service than postal money orders.
Organization and Capitalization of Ordinary
Commercial Banks
According to the Corporation Code, commercial banks
are to have at least five but not more than fifteen
incorporators in its organization. On the other hand,
those who own certain shares in the bank are called
corporators or stockholders. A commercial bank has
an authorized capitalization of 500 million pesos, with
a 20% ceiling limit for each individual stockholder.
74
Operations of a Commercial Bank
Commercial banks handle a number of operations
which are then handled by specific departments.
These operations are necessary for the bank to meet
its objectives.
•
Deposit Operations – Commercial banks have
the power to accept or create demand
deposits, savings deposits, time deposits, and
NOW accounts, which is a type of savings
account whose balance can be withdrawn
through a Negotiable Order of Withdrawal.
•
Borrowing Operations – In order to maintain
other
operations,
commercial
banks
may
borrow funds from the Bangko Sentral ng
Pilipinas. These borrowings may be one of the
following:
o Rediscounting
–
In
this
type
of
borrowing, it is the bank that assigns
eligible
borrowers’
papers
set
in
accordance to the given guidelines,
terms, and conditions. These documents
include: original promissory notes, loan
application,
inspections
report,
loan
75
contract,
title
declaration,
of
and
property,
other
tax
supporting
documents.
o Direct Advance or Loan – When a
commercial bank is in a state of
emergency, the BSP may grant them a
loan
directly
even
without
eligible
borrowers’ papers.
•
Deposit Substitute Operations – Also known as
quasi-banking or money market operations.
Quasi-banking is borrowing funds for the
borrower’s own account for the purpose of
lending or purchasing of receivables.
•
Lending Operations – Commercial banks grant
different classifications of loans:
o as
to
collateral
–
secured
loans,
unsecured loans
o as
to
purpose
–
agricultural,
commercial, industrial, real estate, etc.
o as to accounting treatment – demand
loans, bills discounted, time loans
•
Trust Operations – Trust operations, also
known as trust business, is the administration,
76
holding, and management by a trustee of
funds for the advantage of the beneficiaries.
Trust operations have two requirements before
it can be offered by commercial banks:
o It should be authorized in its articles of
incorporation
to
engage
in
trust
businesses.
o A security of 250,000 Php shall be
deposited to the BSP as collateral before
they transact with trust businesses.
•
Other operations – Commercial banks may
engage
in
sales
of
securities,
such
as
government bonds, treasury bills, and others.
Commercial banks may also be authorized to
collect taxes, making it easier for the Bureau of
Internal Revenue. These banks are also given
the power to act as clearing authorities as an
aide
to
the
Philippine
Clearing
House
Corporation. Lastly, commercial banks may
also engage in buying and selling of foreign
currencies, forming part of our international
reserves.
77
Expanded Commercial Banks and its Powers
Expanded commercial banks are basically commercial
banks with added powers of an investment house,
such as underwriting, securities dealership, and equity
investment.
Powers relating to investment house operations may
be acted upon by commercial banks either in-house
or in-bank, or through the establishment of separate
subsidiary.
Organization
and
the
Capitalization
of
Expanded Commercial Banks
Organization within an expanded commercial bank is
the same as the ordinary commercial banks, except
that expanded commercial banks need 1.5 billion Php
in order to start operating.
Scope of Authority of Expanded Commercial
Banks
An expanded commercial bank follows the same
scope of authority as ordinary commercial banks, with
the addition of the powers of an investment house,
the authority to invest in the equity of non-allied
78
undertaking, and to acquire 100% of the equity of a
financial institution in accordance with applicable laws
and regulations.
Equity
Investment
Underwriting
and
Dealership in Securities
For an expanded commercial bank to be able to
invest in the equity of other allied enterprises, it must
adhere to the following regulations as determined by
the Monetary Board:
1. Total equity investments in allied enterprises
shall not exceed 35% of the bank’s net worth
2. Equity investments in one enterprise shall not
exceed 25% of the bank’s net worth.
A commercial bank may also own up to 100% of the
equity of a thrift bank, rural bank, or of that of a nonfinancial allied enterprise.
Commercial Banks in the Philippines
•
BDO/Banco de Oro – is the largest bank in the
Philippines
79
•
Metropolitan
Bank
and
Trust
Company
(Metrobank)
•
BPI/Bank of the Philippine Islands – the oldest
bank in Southeast Asia
•
LBP/Land Bank of the Philippines – the main
government bank
•
Philippine National Bank (PNB)
•
Security Bank Corporation (Security Bank)
•
China Banking Corporation (Chinabank)
•
DBP/Development Bank of the Philippines –
secondary government bank
•
Union Bank of the Philippines (Unionbank)
•
Rizal Commercial Banking Corporation (RCBC)
•
United Coconut Planters Bank (UCPB)
•
East West Banking Corporation (EastWest
Bank)
•
Citibank Philippines
•
Asia United Bank Corporation (AUB)
•
The
Hongkong
and
Shanghai
Banking
Corporation (HSBC)
•
Philippine Trust Company (Philtrust Bank)
•
Bank of Commerce (a subsidiary of San Miguel
Corporation)
80
•
Maybank Philippines, Inc.
•
Robinsons Bank Corporation
•
Philippine Bank of Communications (PBCom)
•
Mizuho Bank, Ltd. Manila Branch
•
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
•
BDO Private Bank (subsidiary of Banco de Oro)
•
Standard Chartered Bank Philippines
•
Deutsche Bank
•
Philippine Veterans Bank (Veterans Bank; PVB)
•
CTBC Bank (Chinatrust)
•
JPMorgan Chase & Co. (JPMorgan Chase)
•
Australia and New Zealand Banking Group
(ANZ)
•
Sumitomo Mitsui Banking Corporation Manila
Branch
•
ING Group N.V.
•
Bank of America, N.A.
•
Bank of China - Manila Branch
•
Mega International Commercial Bank Co. LTD
•
KEB Hana Bank - Manila Branch
•
Bangkok Bank Co. Ltd.
•
Industrial Bank of Korea Manila Branch
•
United Overseas Bank Limited Manila Branch
81
•
Cathay United Bank Co. Ltd. - Manila Branch
•
Shinhan Bank - Manila Branch
•
Hua Nan Commercial Bank Ltd. Manila
•
First Commercial Bank Manila
•
Al-Amanah Islamic Investment Bank of the
Philippines
82
CHAPTER QUIZ NO.5
COMMERCIAL BANKS
NAME
DATE
SECTION
SCORE
PART I. TRUE OR FALSE
Instructions. Write TRUE if the statement about the
powers possessed by commercial banks is correct. If
it is incorrect, encircle the wrong term in the
statement and write the correct term in the blank
provided.
_____________ 1. Accepting deposits is a commercial
bank’s most vital service offered.
_____________ 2. Also known as current deposits,
money
in
fixed
deposits
accounts
cannot
be
withdrawn until the expiration of the period set to
grow the balance.
_____________ 3. Commercial banks have the
authority to grant loans to the public with interest
83
rates depending on the purpose of the loan, the
period, and the mode of repayment.
_____________ 4. Commercial banks grant different
classifications of loans such as to collateral and to
accounting treatment.
_____________ 5. Commercial banks restrict credit
facilities to its customers.
_____________ 6. Another function of commercial
banks is creating credit, or simply, manufacturing
loans.
_____________ 7. Cheque transactions are a more
expensive
medium
of
transaction
offered
by
commercial banks.
_____________ 8. Commercial banks do not offer
remittance service.
_____________ 9. Commercial banks do not allow
the public to pay an amount before due dates of bills
_____________ 10. Commercial banks allows the
public to withdraw infinite amounts, and interest rates
depend on the actual amount withdrawn.
84
PART II. COMPLETION
Instructions. Complete the table below by providing
an description for the operations of a commercial
bank.
Deposit Operations
Borrowing Operations
Deposit
Substitute
Operations
Lending Operations
Trust Operations
Other Operations
85
PART III. ESSAY
Instructions. Answer the following guide questions
in 5-6 sentences.
1.
What
are
the
powers
of
an
ordinary
commercial bank?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2.
What powers are added into an expanded
commercial bank?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
86
___________________________________________
___________________________________________
___________________________________________
___________________________________________
3.
How do ordinary and expanded commercial
banks differ in organization and capitalization?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
4.
How do commercial banks operate on different
facets?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
87
___________________________________________
___________________________________________
___________________________________________
___________________________________________
88
CHAPTER 6
THRIFT AND RURAL BANKS
Guide Questions
1. What are thrift banks made for?
2. How are the different kinds of thrift banks
different from each other?
3. What is the capitalization requirement for thrift
banks?
4. What operations do thrift banks function in?
Nature of Thrift Banks
Thrift banks in the Philippines were established when
Republic Act No. 7906, the Thrift Banks Act, was
signed on 23 February 1995. Thrift banks are financial
institutions focusing on taking deposits and offering
home mortgages. It aims to provide low-cost home
loans and high interest rate savings and checking
accounts. Thrift banks are community-centred, and
are generally smaller than commercial banks.
89
Thrift banks cater to anyone in need of easier and
more convenient banking services available in their
local community. Thrift banks are not governmentprotected, although deposits made into thrift banks
are still protected by the state.
Kinds of Thrift Banks
•
Savings and Mortgage banks – The function of
savings and mortgage banks is to accumulate
savings from depositors to invest in readily
marketable bonds and debt securities. These
banks are allowed to make investments, grant
loans, and issue letters of credit.
•
Private Development Banks – As it is stated in
the General Banking Law, private development
banks shall exercise the same powers and
obligations as that of savings and mortgage
banks.
•
Savings and loan associations – These are
corporations whose function is to accumulate
savings
from
depositors
for
loans
and
investments.
90
Capitalization of Thrift Banks
Thrift banks are required by law to be 40% owned by
citizen of the Philippines. The percentage of foreignowned stocks shall depend on the citizenship of
individual stockholders. In the case of corporations
owning shares, the citizenship of each stockholder is
considered.
Capital accounts of thrift banks should not be less
than an amount equal to 10% of its risk assets. Risk
assets is a bank’s total assets subtracted by the
following assets:
•
Cash on hand
•
Amounts from BSP
•
Evidences of indebtedness
•
Other non-risk items as declared by the
Monetary Board as assets to be deducted
Operations of Thrift Banks
According to the Thrift Bank Act of 1995, thrift banks
may operate on the following functions:
•
Accept savings and time deposits
91
•
Open current or checking accounts – this
function requires that the bank possess net
assets of at least 20 million Php
•
Act as a correspondent for other financial
institutions
•
Act as a collection agent for government
entities
•
Act as official depository of national agencies
•
Rediscount paper with government financial
institutions
•
Issue
mortgage
and
chattel
mortgage
certificates
•
Purchase, hold, and convey real estate under
the same provisions for commercial banks
•
Engage in quasi-banking and money market
operations
•
Open domestic letters of credit
•
Extend
credit
facilities
to
private
and
government employees
•
Extend credit against the security of jewellery
•
Offer other banking services
92
Rural Banks and its Organization
Rural banks in the Philippines were created under
Republic Act No. 720 in June 1952, at a time when
the country is recovering from the devastation of the
Second World War. Republic Act No. 7353, or the
Rural Act of 1992, strengthened the roles played by
rural
banks.
The
act
aims
to
promote
rural
development, specifically the establishment of rural
banks
for
the
purpose
of
adequate
financial
institutions and credit facilities to farmers and
merchants
and
the
general
people
of
rural
communities.
Rural banks promote and expand the rural economy
through providing them with basic financial services.
Rural banks primarily support farmers, beginning from
the purchasing of seedlings up until the marketing of
their produce.
These banks are sponsored or assisted by the
government, but are privately managed and owned.
Rural banks are organized like stock corporations with
no less than five and no more than fifteen
incorporators. These incorporators must be of Filipino
citizenship, possesses good credit ratings, and are of
93
good moral character. Capitalization of rural banks
should not be less than 500,000 Php, with the first
300,000 Php to be put into the start of operations,
while the rest of the 200,000 Php will be paid within
three years from the beginning of bank operation.
Authorized capital for rural banks must not be less
than 1 million Php.
Functions of Rural Banks
Rural banks offer the following services:
•
Grant loans and make investments
•
Accept savings and time deposits
•
Sell domestic drafts
•
Receive in custody funds, documents, and
other things
•
Act as a financial agent
•
Make collections and payments for the account
of others
Operations and Services of Rural Banks
Upon approval of the Monetary Board, rural banks are
allowed to perform the following operations and
services:
94
•
Open current, demand, or NOW accounts
•
Act as a trustee over properties of farmers and
other merchants
•
Act as official depository of the municipality,
city, or province where the bank is located
•
Rediscount paper with the PNB or DBP
•
Invest in allied undertakings
Thrift and Rural Banks in the Philippines
Below are the thrift and rural banks in the country:
•
One Network Bank, Inc. (a subsidiary of Banco
de Oro)
•
EastWest Rural Bank, Inc. (a subsidiary of
EastWest Bank)
•
CARD Bank, Inc. (a MF RB)
•
Delao Rural Bank, Inc.
•
Guagua Rural Bank, Inc.
•
First Isabela Cooperative Bank (FICO Bank)
•
GM Bank of Luzon, Inc. (a rural bank)
•
Quezon Capital Rural Bank, Inc.
•
Metro South Cooperative Bank
•
BOF, Inc. (a rural bank)
•
AMA Rural Bank of Mandaluyong, Inc.
95
•
Rang-ay Bank, Inc. (a rural bank)
•
Katipunan Bank, Inc. (a rural bank)
•
Cantilan Bank, Inc. (a rural bank)
•
Dumaguete Rural Bank Inc. (DRBI)
•
Rizal Bank (a MF RB)
•
Banco Dipolog (a rural bank; subsidiary of the
Philippine Bank of Communications)
•
Country Builders Bank, Inc. (a rural bank)
•
Summit Bank (rural bank of Tublay, Inc.)
•
Rural Bank of Angeles, Inc. (A subsidiary of
Asia United Bank Corporation)
•
Banco Mabuhay (a rural bank)
•
Marayo Bank, Inc. (a rural bank)
•
Cooperative Bank of Cotabato
•
Insular Savers Bank, Inc. (a rural bank)
•
Rural Bank of Cauayan, Inc.
•
New Rural Bank of San Leonardo (N.E.) Inc.
•
Rural Bank of Pandi (Bulacan) Inc.
•
People’s Rural Bank (Gen. Santos City) Inc.
•
MVSM Bank (a rural bank since 1953) Inc.
•
Camalig Bank, Inc. (a rural bank)
•
Consolidated Cooperative Bank
•
Rural Bank of Barili (Cebu) Inc.
96
•
Imus Rural Bank, Inc.
•
Bankways, Inc. (a rural bank)
•
ASPAC Rural Bank, Inc.
•
PlanBank (Rural Bank of Canlubang Planters,
Inc.)
•
Rural Bank of Central Pangasinan (Bayambang)
Inc.
•
Rural Bank of Digos, Inc.
•
Rural Bank of Magdalena (Laguna) Inc.
•
Mount Makiling Rural Bank, Inc.
•
First Tagum Rural Bank, Inc.
•
Valiant Bank, Inc. (a rural bank)
•
Gateway Rural Bank, Inc.
•
LifeBank (a rural bank)
•
Malarayat Rural Bank, Inc.
•
Rural Bank of San Mateo (Isabela) Inc.
•
Mallig Plains Rural Bank (ISA) Inc.
•
Highland Rural Bank, Inc.
•
Cooperative Bank of Quezon Province
•
Mactan Rural Bank (Lapu-Lapu City) Inc.
•
Rural Bank of Bambang (Nueva Vizcaya) Inc.
•
Ilocos Sur Cooperative Bank
•
Rural Bank of Pola (Oriental Mindoro)
97
•
Cooperative Bank of Ilocos Norte
•
RBT Bank, Inc. (a rural bank)
•
Rural Bank of Rizal (Zamboanga del Norte) Inc.
•
Rural Bank of Gattaran (Cagayan) Inc.
•
Laguna Prestige Banking Corporation (a rural
bank)
•
Rural Bank of Maria Aurora (Aurora) Inc.
•
Rural Bank of Itogon (Benguet) Inc.
•
Rural Bank of Pilar (Bataan) Inc.
•
BHF Rural Bank, Inc.
•
Network Consolidated Cooperative Bank
•
Rural Bank of Sta. Ignacia, Inc.
•
Entrepreneur Rural Bank, Inc.
•
Rural Bank of Rosario (La Union) Inc.
•
Saviour Rural Bank, Inc.
•
Rural
Bank
of
Tangub
City
(Misamis
Occidental) Inc.
•
Rural Bank of General Trias, Inc.
•
D' Asian Hills Bank, Inc. (a rural bank)
•
Community Rural Bank of Catmon (Cebu) Inc.
•
Aliaga Farmers Rural Bank, Inc.
•
Rural Bank of San Antonio, Inc.
•
Rural Bank of Dumangas, Inc.
98
•
Rural Bank of Bayombong, Inc.
•
Rural Bank of San Pascual (Obando, Bulacan)
Inc.
•
Cooperative Bank of Nueva Vizcaya
•
Rural Bank of Bagabag (N.V.) Inc.
•
Rural Bank of Solano (Nueva Vizcaya) Inc.
•
Sugbuanon Rural Bank, Inc.
•
Rural Bank of Montalban, Inc.
•
RBG Imperial Bank, Inc. (a rural bank)
•
Banco Laguna, Inc. (a rural bank since 1965)
•
Rural Bank of Dolores (Quezon) Inc.
•
Cebuana Lhuillier Rural Bank, Inc.
•
Rural Bank of Lebak (Sultan Kudarat) Inc.
•
Rural Bank of Cardona (Rizal) Inc.
•
Innovative Bank, Inc. (a rural bank)
•
Common Wealth Rural Bank, Inc.
•
Cooperative Bank of Bohol
•
Liberty Bank (a rural bank)
•
Sta. Maria Rural Bank, Inc.
•
Rural Bank of Guinobatan, Inc.
•
Balanga Rural Bank, Inc.
•
Rural Bank of Maragondon, Inc.
•
Rural Bank of Jaen, Inc.
99
•
Rural Bank of Paracale (Camarines Norte) Inc.
•
Community Rural Bank of Dapitan City, Inc.
•
Cavite United Rural Bank Corporation (A
subsidiary of Asia United Bank Corporation)
•
Rural Bank of Mangaldan
•
Rural Bank of Mabalacat, Inc.
•
Opportunity Kauswagan Inc. (a microfinance
rural bank)
•
First
Agro-Industrial
Rural
Bank,
Inc.
/
FAIRBANK Inc.
•
BPI Family Savings Bank
•
Philippine Savings Bank
•
RCBC Savings Bank
•
Philippine Business Bank
•
China Bank Savings
•
City Savings Bank
•
PNB Savings Bank
•
Sterling Bank of Asia
•
Bank of Makati
•
UCPB Savings Bank
100
CHAPTER QUIZ NO.6
THRIFT AND RURAL BANKS
NAME
DATE
SECTION
SCORE
PART I. IDENTIFICATION
Instructions. Write TB if the statement given is
related to Thrift Banks, and RB if the statement is
related to Rural Banks.
_____________ 1. This type of bank was established
when Republic Act No. 7906 was signed on 23
February 1995.
_____________ 2. These banks are not governmentprotected, although deposits made into these banks
are still protected by the state.
_____________ 3. This type of bank was created
under Republic Act No. 720 in June 1952, at a time
when the country is recovering from the devastation
of the Second World War.
101
_____________ 4. Through Republic Act No. 7353,
the role of this bank was further strengthened in law.
_____________ 5. This bank primarily supports
farmers, beginning from the purchasing of seedlings
up until the marketing of their produce.
_____________ 6. These banks are communitycentered, and are generally smaller than commercial
banks.
_____________ 7. These banks are required by law
to be 40% owned by citizen of the Philippines.
_____________ 8. These banks promote and expand
the rural economy through providing them with basic
financial services.
_____________ 9. These banks are organized like
stock corporations with no less than five and no more
than fifteen incorporators.
_____________ 10.
trustee
over
This type of bank acts as a
properties
of
farmers
and
other
merchants.
102
PART II. ESSAY
Instructions. Answer the following guide questions
in 5-6 sentences.
1.
What are thrift and rural banks made for?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2.
How are the different kinds of thrift banks
different from each other?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
103
___________________________________________
___________________________________________
___________________________________________
3.
What is the capitalization requirement for thrift
and rural banks?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
4.
What operations do thrift and rural banks
function in?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
104
___________________________________________
___________________________________________
___________________________________________
105
CHAPTER 7
OFFSHORE BANKING
Guide Questions
1. What is offshore banking and how does it
work?
2. What financial services do offshore banks
offer?
Offshore Banking
In 30 September 1976, Presidential Decree No. 1034,
an Act Authorizing the Establishment of an Offshore
Banking System in the Philippines, was signed and
made effective. This led to the creation of offshore
banking.
Offshore banking refers to the conduct of banking
transactions in foreign currencies involving the receipt
of funds from external and internal sources and
utilization of such funds.
Offshore banking contributes a lot to the country’s
economy as it opens doors for new opportunities and
106
investments. Offshore banks increase the country’s
connection with foreign lenders, creating more
employment opportunities and contributing to the
national development effort.
Characteristics of Offshore Banks
Philippine-based offshore
banks
are
allowed to
engage in offshore fund generation and placements in
foreign currency. It can also trade in foreign
exchange and discount bills, and invest in foreign
securities and debt instruments on non-residents.
Offshore banks operate only for foreigners, and
operations do not involve domestic banking services.
Foreign banks, on the other hand, may operate an
offshore banking unit in the country after the
Monetary Board issues a Certificate of Authority to
Operate and after it is registered with the Securities
and Exchange Commission.
Foreign exchange remittances are also handled by
offshore banks. With the increasing number of
overseas Filipino workers, this financial service has
become essential.
107
According
to
Consolidated
CBP
Circular
Foreign
No.
1389,
Exchange
or
Rules
the
and
Regulations, authorized banks in the Philippines are
required to pay an annual fee of not less than
US$20,000 to the Bangko Sentral ng Pilipinas.
Roles of Offshore Banking Units
Offshore banking units, or OBUs, do not carry retail
business. Instead, they play roles such as the
following and for the following functions:
•
Project financing
•
Wholesale banking service
•
Syndicated loans
•
Merchant banking
•
Deposit taking
•
Foreign Exchange
•
Fund management
•
Investment management
•
Investment custody
•
Letters of credit and trade finance
108
CHAPTER QUIZ NO.7
OFFSHORE BANKING
NAME
DATE
SECTION
SCORE
PART I. TRUE OR FALSE
Instructions. Write TRUE if the statement about
offshore banking is correct, and FALSE if otherwise.
_____________
1.
In
20
September
1976,
Presidential Decree No. 1036, an Act Authorizing the
Establishment of an Offshore Banking System in the
Philippines, was signed and made effective.
_____________ 2. Offshore banking refers to the
conduct of banking transactions in foreign currencies
involving the receipt of funds from external and
internal sources and utilization of such funds.
_____________ 3. Offshore banks decrease the
country’s connection with foreign lenders
109
_____________ 4. Philippine-based offshore banks
are allowed to engage in offshore fund generation
and placements in foreign currency.
_____________ 5. Philippine-based offshore banks
are not allowed to trade in foreign exchange and
discount bills, and invest in foreign securities and debt
instruments on non-residents.
_____________ 6. Philippine-based offshore banks
invest in foreign securities and debt instruments on
non-residents.
_____________ 7. Foreign exchange remittances are
also handled by offshore banks.
_____________ 8. Authorized banks in the Philippines
are required to pay an annual fee of not less than
US$50,000 to the Bangko Sentral ng Pilipinas.
_____________ 9. Local banks may operate an
offshore banking unit in the country after the
Monetary Board issues a Certificate of Authority to
Operate and after it is registered with the Securities
and Exchange Commission.
110
_____________ 10.
Offshore banks operates not
only for foreigners, and operations involve domestic
banking services.
PART II. ENUMERATION
Instructions. Enumerate the roles of offshore
banking units.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
111
PART III. ESSAY
Instructions. Answer the following guide questions
in 5-6 sentences.
1.
What is offshore banking and how does it
work?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2.
What financial services do offshore banks
offer?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
112
___________________________________________
___________________________________________
___________________________________________
___________________________________________
113
CHAPTER 8
NON BANK FINANCIAL
INSTITUTIONS
Guide Questions
1. What are the non-bank financial institutions
established in the Philippines?
2. What are the roles and functions of these
institutions in the financial growth of the
country?
3. How do these establishments cater to the
needs of the citizens of the Philippines?
GSIS (Government Service Insurance System)
Established on November 14, 1936, the GSIS was
created by the Congress of the Philippines through
the Commonwealth Act (CA) No. 186. It was formed
to
promote
employees
the
wellbeing
through
an
of
the
insurance
government
system.
This
insurance system aims to support the financial
114
instabilities of its members acquired from death,
disability or old age.
On May 31, 1977, Presidential Decree (PD) No. 1146,
otherwise
known
as “The
Revised Government
Service Insurance Act of 1977”, was issued by then
President Ferdinand E. Marcos. On June 24, 1997,
Republic Act (RA) No. 8291, otherwise known as “The
Government Service Insurance System Act of 1997”,
was enacted into law to enhance the social security
coverage and benefits of the GSIS.
GSIS Benefits In The Philippines
•
Life Insurance
o Life Endowment Policy (LEP) -GSIS
started with the LEP program. Designed
to provide members with life insurance
coverage while still in active service, LEP
provides maturity benefits to policy
holders upon reaching the maturity of
their policy.
o Enhanced Life Policy (ELP) - ELP took
effect on August 1, 2003. It provides an
115
automatic yearly insurance coverage to
new members of GSIS based on their
monthly compensation. ELP is designed
to provide an enhanced death benefit
for the family of the deceased member.
The following members are covered
under this program:
1. Those
who
entered
the
service
starting August 1, 2003;
2. Those whose policies matured on or
after July 31, 2003, and who will
continue to be active members after
the maturity date; and
3. Those who opted or will opt to
convert their LEP into ELP.
•
Retirement Plan
o Retirement under Republic Act 8291 Retirement under RA 8291
may be
availed by those who have rendered at
least 15 years of service in government
and must be at least 60 years of age
upon retirement. Also, they must not
be permanent total disability pensioners.
116
The last three years of service need
not be continuous under RA 8291.
o Retirement under Republic Act 660
(Magic 87) - Retirement under RA 660
(also known as ‘Magic 87’), may be
availed by members who are 52 years
old
for as long as they have already
been in government service for the past
35 years.
o Retirement under Republic Act 1616
(Take all Retirement Mode) - Retirement
under RA 1616 may be availed by those
who entered government service on or
before May 31, 1977 and who rendered
at least 20 years of service regardless of
age and employment status. Further,
the last three years of service prior to
retirement must be continuous, except
in cases of death, disability, abolition or
phase
out
of
position
due
to
reorganization.
o Retirement under Presidential Decree
1146 - Retirement under PD 1146 may
117
be availed by those who were separated
/ retired from service before June 24,
1997.
o Retirement under Republic Act 7699 Under RA 7699, otherwise known as the
Portability Law, government retirees
who do not meet the required number
of years provided under PD 1146 and
RA 8291 may still avail themselves of
retirement and other benefits. Under
this law, retirees may combine their
years of service in the private sector
represented by contributions to the
Social Security System (SSS) with their
government service and contributions to
the GSIS to satisfy the required years of
service under PD 1146 and RA 8291.
However,
if
retirees
have
already
satisfied the required years of service
under the GSIS retirement option they
have chosen, they would not be allowed
to incorporate their contributions to the
SSS anymore for availment of additional
118
benefits. In case of death, disability and
old age, the
periods of creditable
services or contributions to the SSS and
GSIS shall be added to entitle retirees to
receive the benefits under either PD
1146 or RA 8291. If qualified under RA
8291,
all
EXCEPT
the
the
Portability
Law
benefits
cash
shall
apply
payment.
The
provides
that
only
benefits common to both Systems (GSIS
and SSS) shall be paid. Cash payment is
NOT included in the benefits provided
by the SSS.
•
Separation Benefit - The Separation benefit is
given to employees who have not reached the
retirement age of 60 but have been separated
from the service. The benefit can either be in
the form of cash payment or both cash
payment or pension.
o Unemployment
Or
Involuntary
Separation - The unemployment benefit
is paid when permanent government
employees who have paid the required
119
12
months
under
integrated
contributions
8291 are
involuntarily
RA
separated from the service as a result of
the abolition of their office or position
usually resulting from reorganization.
The benefit is in the form of monthly
cash payments equivalent to 50% of the
average monthly compensation (AMC).
The duration of the benefit depends on
the
length
of
service
and
ranges
from two months to a maximum of six
months.
o Disability - Disability refers to any loss
or impairment of the normal functions of
the physical and/or mental faculties
of members,
which
permanently
or
temporarily prevents them to continue
with work or engage in any other gainful
occupation resulting in the loss of
income. The corresponding disability
benefits
for
each
kind
of
disability granted to members are based
on the duration of incapacity to work
120
and actual loss of income. There are
three kinds of disability determined by
GSIS:
1.
Permanent Total Disability
(PTD) – disability due to injury or
disease
causing
complete,
and
permanent
irreversible
incapacity that will permanently
disable a member to work or to
engage in any gainful occupation
resulting to loss of income.
2.
Permanent
Partial
Disability (PPD) – arises due to
the complete and permanent loss
of the use of any of the following
resulting to the disability to work
for a limited period of time:
i.
any finger
ii.
one arm
iii.
one foot
iv.
any toe
v.
one hand
vi.
one leg
121
vii.
one or both ears
viii.
hearing of one or both
ears
ix.
sight of one eye
x.
such other cases as may
be
determined
and
approved by the GSIS
3.
Temporary Total Disability
(TTD) – accrues or arises when
the
impaired
mental
physical
faculties
can
and/or
be
rehabilitated and/or restored to
their normal functions, but such
disability will result in temporary
incapacity to work or to engage
in any gainful occupation.
•
Survivorship
Recognizing that pension is an earned right
and not a privilege, the Board of Trustees restored
the survivorship benefit of surviving spouses of
members and pensioners even if they are gainfully
employed and receiving other sources of income
or pension.
122
Implemented in December 2010, the new basic
survivorship
pension
(BSP)
payable
to
the
surviving spouse is equivalent to 50% of the basic
minimum pension received by the deceased
member or pensioner. However, the maximum
limit for survivorship pension should not exceed
Step 8 of the current salary of an undersecretary
under the Salary Standardization Law.
The dependent’s pension for the children of
the deceased member is equivalent to 10% of the
basic minimum pension payable until the age of
majority. Payment of BSP to the dependent
spouse shall be discontinued in case the latter
remarries, cohabits or engages in a common-law
relationship.
When
members
or
pensioners
die, their
beneficiaries are entitled to cash and/or pension
benefits,
subject
to
the
existing
rules
and
regulations on survivorship and policies on the
maximum amount of survivorship pension.
•
Funeral
123
The benefit is payable to the members of the
family of the deceased, according to the following
priorities:
1. Legitimate spouse
2. Legitimate child who spent for the funeral
services, or
3. any
other
person
who
can
show
unquestionable proof of his having borne the
funeral expenses of the deceased.
A. EMPLOYEES COMPENSATION
The
employees’ compensation benefit (or
disability benefit) is a compensation package for
public and private sector employees and their
dependents in the event of work-related injury,
sickness, disability or death.
EC is a purely employer-based contribution
benefit. Thus, employees do not contribute any
amount to the program. GSIS administers the
employees compensation (EC) fund as provided
for under Presidential Decree No. 626.
124
SSS (Social Security System)
The SSS, or the Social Security System, is an
insurance program run by the State for the private,
professional and informal sectors of workers in the
Philippines. It is established under the Republic Act
(RA) No. 1161, or the Social Security Act of 1954.
It was the late President Manuel A. Roxas who first
initiated the establishing of a social security system.
He proposed a bill in Congress to create a system for
wage earners and low-salaried employees.
On July 7, 1948, the late President Elipidio Quirino
created the Social Security Commission, which drafted
the Social Security Act that was passed to Congress.
While it was enacted in 1954, the implementation of
was delayed due to objections made by business and
labor groups.
The bill was amended in 1957, presented in Congress,
and created the Republic Act 1792, amending the
original Social Security Act. It was during this year
that the Social Security Act of 1954 was finally
implemented.
125
In 1997, President Fidel V. Ramos signed Republic Act
no. 8282, or the Social Security Act of 1997, an act to
further strengthen the SSS. This act paved the way to
more sound benefit packages, expansion of coverage,
flexibility in investments, stiffer penalties for violators
of the law, condonation of penalties for delinquent
employers, and the establishment of a voluntary
provident fund for members.
In 2017, President Rodrigo Duterte approved the SSS
pension increase of Php 1,000 for more than 2.2
million SSS pensioners.
SSS envisions itself as a viable social security
institution providing universal and equitable social
protection through world-class service. They aim to
promote social justice and provide protection to its
members in times of disability, sickness, maternity,
old age, death and other contingencies resulting in
loss of income or financial instability.
Benefits and Loans Granted By Social Security
System
126
The SSS offers a variety of benefits and loans to its
members. Mainly, there are two programs being
administered by the SSS.
•
Social Security Program
There are six different types of benefits under
the Social Security Program. They are as
follows:
o Sickness – a daily cash allowance paid
for the number of days a member is
unable to work due to sickness or injury.
The amount of benefit allowance a
member can avail is equivalent to ninety
percent (90%) of his/her average daily
salary credit.
o Maternity – A daily cash allowance is
granted to a female member who is
unable to work due to childbirth or
miscarriage. The amount of the daily
Maternity
Benefit
allowance
is
equivalent to one hundred percent of
her
average
daily
salary
credit,
multiplied by 60 days in case of normal
127
delivery, miscarriage, ectopic pregnancy
without operation, hydatidiform mole, or
by
78
days
for
caesarean
section
delivery, or ectopic pregnancy with
operation.
o Disability - A cash benefit granted,
either as a monthly pension or a lump
sum
amount,
to
a
member
who
becomes permanently disabled, either
partially or totally. If qualified, the
member is granted a monthly Disability
Pension,
plus
a
P500
monthly
Supplemental Allowance.
o Retirement - A cash benefit granted,
either as a monthly pension or a lump
sum amount, to a member who can no
longer work due to old age. If qualified,
the member is granted a monthly
Retirement Pension, plus a 13th Month
Pension payable every December.
o Death - A cash benefit granted, either
as a monthly pension or a lump sum
amount,
to
the
beneficiaries
of
a
128
deceased member. The beneficiary may
be the legitimate spouse, until he or she
remarries, or the dependent legitimate,
legitimated or legally adopted, and
illegitimate children. If qualified, the
member’s primary beneficiary is granted
a monthly Death Pension, plus a 13th
Month
Pension
payable
every
December.
o Funeral - A cash benefit is given to
whoever paid for the burial expenses of
the deceased member. The Funeral
benefit is a variable amount ranging
from a minimum of P20,000 to a
maximum of P40,000, depending on the
member’s
paid
contributions
and
credited years of service.
•
Employee’s Compensation (EC) Program
A cash benefit is granted to a member for
temporary sickness, permanent, partial or total
disability, and death suffered from workrelated activities.
129
Starting June 1984, the benefits under the EC
Program may be enjoyed simultaneously with
benefits under the Social Security Program,
thus,
allowing
double
compensation
for
covered members who suffer work-related
contingencies.
All
SSS-registered
employers
and
their
employees are compulsorily covered under the
EC Program and need not register again under
the EC.
The members who are qualified for this
program
appliances
are
and
granted
medical
supplies,
as
services,
well
as
rehabilitation services.
Salary Loans
Aside from these two programs, SSS members can
also make salary loans. A cash loan granted to an
employed,
currently-paying,
self-employed
or
voluntary member. It is intended to meet the
member’s short-term credit needs.
130
A one-month loan is equivalent to the average of
member’s last twelve monthly salary credits or the
amount applied for, whichever is lower. The loan is
charged with an interest rate of 10 percent, per
annum until fully paid, based on diminishing principal
balance, and shall be amortized over a period of 24
months.
HDMF (Home Development Mutual Fund)
HDMF is a non bank financial institution declared by
the State to provide for the housing needs of the
people. It is more known as the Pag-ibig fund, or the
“Pagtutulungan
sa
Kinabukasan:
Ikaw,
Bangko,
Industriya at Gobyerno” fund. HDMF was created
through the Republic Act (RA) No. 9679 or the Home
Development Mutual Fund Law of 2009. This fund is
mandatory upon three criteria:
•
All employees covered by the SSS and the
GSIS,
and
their
notwithstanding
respective
any
waiver
employers,
of
coverage
previously issued, including the uniformed
members
of
the
Armed
Forces
of
the
131
Philippines, the Bureau of Fire Protection, the
Bureau of Jail Management and Penology, and
the Philippine National Police.
•
Filipinos employed by foreign-based employers.
•
Spouses who devote full-time to managing the
household and family affairs, unless they also
engage in another vocation or employment
which is subject to mandatory coverage, may
be covered by the Fund on a voluntary basis
adopting as a basis of contributions one half of
the monthly compensation income of the
employed spouse.
Housing Loan Availment
This housing loan program grants opportunities to
Pag-IBIG Fund members to avail of housing loans to
finance any one or a combination of the following:
•
Purchase of a fully developed lot not exceeding
1,000 square meters, which should be within a
residential area;
132
•
Purchase of a residential house and lot,
townhouse or condominium unit, inclusive of a
parking slot, which may be:
o Old or brand new;
o A property mortgaged with the Fund; or
o An acquired asset, which is disposed of
through sealed public bidding, negotiated
sale, the Rent-to-Own Program, or the
“Magaang
Pabahay,
Disenteng
Buhay”
Program.
•
Construction or completion of a residential unit
on a lot owned by the member;
•
Home improvement, i.e. any alteration in an
existing
residential
unit
intended
by
a
homeowner to be a permanent integral part
thereof, which will enhance its durability and
material value;
•
Refinancing of an existing mortgage with an
institution acceptable to the Fund, provided
that:
o The loan is not in default within 12 months
prior to the date of application;
133
o The said loan has a repayment history of at
least two (2) years with the original
mortgagee
•
Combination of loan purposes, which shall be
limited to the following:
o Purchase of a fully developed lot not
exceeding
1,000
square
meters
and
construction of a residential unit thereon;
o Purchase of a residential unit, whether old
or new, with home improvement;
o Refinancing of an existing mortgage with
home improvement;
o Refinancing
of
an
existing
mortgage,
specifically a lot loan, with construction of a
residential unit thereon.
PhilHealth
(Philippine
Health
Insurance
Corporation)
Created in 1995, The Philippine Health Insurance
Corporation,
or
known
implement
universal
as
PhilHealth,
aims
to
health
coverage
in
the
Philippines. It is a tax-exempt, government-owned
134
and controlled corporation of the Philippines, and is
attached to the Department of Health.
The Philippine Medical Care Program began in 1971
following the Philippine Medical Care Act of 1969. It
mandated the creation of the Philippine Medical Care
Commission or the PMCC.
In 1990, bills were passed that led to significant
improvement of public health care insurance. House
Bill 14225 and Senate Bill 01738 became Republic Act
7875, known as "The National Health Insurance Act of
1995". Approved by President Fidel Ramos on
February 14, 1995, this became the basis of the
Philippine Health Insurance Corporation.
PhilHealth also aims to ensure a sustainable national
health insurance program for all. In 2010, it claimed
to have achieved "universal" coverage at 86% of the
population, although the 2008 National Demographic
Health Survey showed that only 38 percent of
respondents were aware of at least one household
member being enrolled in PhilHealth.
135
Powers And Functions Of Philhealth
As stated in Article IV, Section 16 of RA 7875 as
amended by 10606, PhilHealth has the following
powers and functions:
•
To
administer
the
National
Health
Insurance Program;
•
To formulate and promulgate policies for
the sound administration of the Program;
•
To
supervise
the
provision
of
health
benefits and to set standards, rules and
regulations necessary to ensure quality of
care, appropriate utilization of services,
fund viability, member satisfaction, and
overall
accomplishment
of
Program
objectives;
•
To formulate and implement guidelines on
contributions and benefits; portability of
benefits, cost containment and quality
assurance;
and
arrangements,
health
payment,
care
provider
methods,
and
referral systems;
136
•
To establish branch offices as mandated in
Article V of this Act;
•
To receive and manage grants, donations,
and other forms of assistance;
•
To sue and be sued in court;
•
To acquire property, real and personal, this
may be necessary or expedient for the
attainment of the purposes of this Act;
•
To collect, deposit, invest, administer, and
disburse the National Health Insurance
Fund in accordance with the provisions of
this Act;
•
To negotiate and enter into contracts with
health care institutions, professionals, and
other
persons,
regarding
the
juridical
pricing,
or
natural,
payment
mechanisms, design and implementation of
administrative and operating systems and
procedures,
financing,
and
delivery
of
health services in behalf of its members;
•
To authorize Local Health Insurance Offices
to negotiate and enter into contracts in the
name and on behalf of the Corporation with
137
any
accredited
sector
health
including
but
maintenance
government
provider
not
limited
organizations,
or
private
organization,
to
health
cooperatives
and medical foundations, for the provision
of at least the minimum package of
personal health services prescribed by the
Corporation;
•
To
determine
requirements
and
issue
guidelines for the accreditation of health
care
providers
for
the
Program
in
accordance with this Act;
•
To visit, enter and inspect facilities of
health care providers and employers during
office hours, unless there is reason to
believe that inspection has to be done
beyond office hours, and where applicable,
secure copies of their medical, financial,
and other records and data pertinent to the
claims, accreditation, premium contribution,
and that of their patients or employees,
who are members of the Program;
138
•
To organize its office, fix the compensation
of and appoint personnel as may be
deemed
necessary
and
upon
the
recommendation of the president of the
Corporation;
•
To
submit
to
the
President
of
the
Philippines and to both Houses of Congress
its Annual Report which shall contain the
status of the National Health Insurance
Fund, its total disbursements, reserves,
average
costing
to
beneficiaries,
any
request for additional appropriation, and
other data pertinent to the implementation
of the Program and publish a synopsis of
such report in two (2) newspapers of
general circulation;
•
To keep records of the operations of the
Corporation
and
investments
of
the
National Health Insurance Fund;
•
To establish and maintain an electronic
database of all its members and ensure its
security to facilitate efficient and effective
services;
139
•
To invest in
the
acceleration
Corporation’s
information
of the
technology
systems;
•
To conduct information campaign on the
principles of the NHIP to the public and to
accredited
health
care
providers.
This
campaign must include the current benefit
packages provided by the Corporation, the
mechanisms to avail of the current benefit
packages,
the
list
of
accredited
and
disaccredited health care providers, and the
list of offices/branches where members can
pay or check the status of paid health
premiums;
•
To conduct post audit on the quality of
services rendered by health care providers;
•
To establish an office, or where it is not
feasible, designate a focal person in every
Philippine Consular Office in all countries
where there are Filipino citizens. The office
or the focal person shall, among others,
process, review and pay the claims of the
overseas Filipino workers (OFWs);
140
•
Notwithstanding the provisions of any law
to the contrary, to impose interest and/or
surcharges of not exceeding three percent
(3%) per month, as may be fixed by the
Corporation, in case of any delay in the
remittance of contributions which are due
within
the
employer,
prescribed
whether
period
public
or
by
an
private.
Notwithstanding the provisions of any law
to the contrary, the Corporation may also
compromise, waive or release, in whole or
in part, such interest or surcharges imposed
upon employers regardless of the amount
involved
under
such
valid
terms
and
conditions it may prescribe;
•
To endeavour and support the use of
technology in the delivery of health care
services especially in farflung areas such as,
but not limited to, telemedicine, electronic
health record, and the establishment of a
comprehensive health database;
•
To monitor compliance by the regulatory
agencies with the requirements of this Act
141
and to carry out necessary actions to
enforce compliance;
•
To mandate the national agencies and
LGUs
to
require
proof
of
PhilHealth
membership before doing business with a
private individual or group;
•
To accredit independent pharmacies and
retail drug outlets; and
•
To perform such other acts as it may deem
appropriate for the attainment of the
objectives of the Corporation and for the
proper enforcement of the provisions of this
Act.
Membership Categories
PhilHealth has six major membership categories. They
are namely:
•
Formal – These are members who are
workers employed by the public and
private
companies
and
other
establishments.
142
•
Indigents
–
These
are
members
subsidized by the National Government
National Targeting System for Poverty
Reduction. These members are also
known as the “PhilHealth sa Masa”
members.
•
Sponsored
Members
–
These
are
members that are subsidized by their
respective Local Governments.
•
Lifetime Members – These are nonpaying members who are retirees and
pensioners
who
have
already
paid
premiums
for
120
months
of
membership and are 60 years and older.
•
Senior Citizens – Under RA 10645, it
states that all citizens age 60 years old
and above must have free PhilHealth
coverage.
•
Informal Economy – This is composed of
Informal
Sectors,
Self-earning
individuals, organized groups, Filipinos
with dual citizenships, naturalized born
citizens and migrant or OFW workers.
143
Benefits of PhilHealth
The benefits package that PhilHealth has is essentially
the same for each membership category; however,
the deduction will depend upon the final diagnosis of
the member in need of aid.
PhilHealth beneficiaries have access to packages of
services
including
inpatient
coverage,
ambulatory
care,
surgeries,
catastrophic
deliveries,
and
outpatient treatment for malaria and tuberculosis.
Those identified as indigent and OFW are also entitled
to outpatient primary care benefits (PCB1) or TSEKAP.
Inpatient care includes room and board, medicines,
diagnostic and other services, professional fees and
operating room services under the "all case rate"
payment scheme. The case rate amount will depend
upon the final diagnosis and each diagnosis has
corresponding fix amount or package.
Outpatient
benefits
include
day
surgeries,
radiotherapy, dialysis, outpatient blood transfusion,
TB-DOTS, malaria treatment, HIV/AIDS treatment,
144
animal bite
treatment, cataract
operations
and
vasectomy and tubal ligation.
145
CHAPTER QUIZ NO. 8
NON BANK FINANCIAL INSTITUTIONS
NAME
DATE
SECTION
SCORE
PART I. IDENTIFICATION
Instruction.
Identify
which
institution
being
described
is
non-bank
financial
in
following
the
sentences.
GSIS
PhilHealth
PagIbig
SSS
_______________ 1. It is an insurance program
run by the State for the private, professional and
informal sectors of workers in the Philippines.
_______________ 2. It is a non bank financial
institution declared by the State to provide for the
housing needs of the people.
146
_______________ 3. It is a non bank financial
institution that is aimed to implement universal health
coverage in the Philippines.
_______________ 4. It was formed to promote
the wellbeing of the government employees through
an insurance system.
_______________ 5. One of its responsibilities as
a financial institution is to administer a National
Health Insurance Program.
_______________
6.
This
institution
was
established through the Republic Act No. 8291 or the
Government Service Insurance System Act of 1997.
_______________ 7. One of its programs, called
Employee’s Compensation Program, is a cash benefit
granted to a member for temporary sickness,
permanent, partial or total disability, and death
suffered from work-related activities.
_______________ 8. One of this institution’s
program is the Enhanced Life Policy, which is
designed to provide a death benefit for the family of
the deceased member.
147
_______________
9.
It
offers
housing
loan
availment, which may be used to purchase a
residential house and lot, to improve a home, or to
construct or complete a unit.
_______________ 10. This institution offers a
salary loan to its members, which is equivalent to the
average member’s last twelve monthly salary credits.
PART II. TRUE OR FALSE
Instructions. Write the capital letters TRUE if the
statement is correct and the capital letters FALSE if
the statement is incorrect.
_______________ 1. The spouse of a deceased
member of GSIS may be granted a basic survivorship
pension or BSP, which makes the beneficiary entitled
to a cash or a pension benefit.
_______________ 2. It is not within the functions
of PhilHealth to keep records of the operations of the
Corporation and investments of the National Health
Insurance Fund.
148
_______________ 3. If a member wishes to get a
housing loan with the purpose of refinancing an
existing mortgage with home improvement, they may
not be granted.
_______________ 4. There are six different types
of benefits under the Social Security Program, which
are Sickness, Maternity, Disability, Retirement, Death,
and Funeral.
_______________ 5.
Members of SSS who are
qualified for the Employee Compensation Program are
granted a cash benefit but not medical services.
PART III. SELF-TEST QUESTIONS
1. What are the criteria in being a member of the
Pagibig Fund?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
149
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2. Give at least three powers and functions of
PhilHealth.
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
150
CHAPTER 9
PAWNSHOPS
Guide Questions
1. What
is
the
purpose
of
the
Pawnshop
Regulation Act?
2. What are the roles and functions does the
Central Bank play in the pawning business?
3. What are the requirements for starting a
pawning business?
4. Who are allowed to start a pawning business in
the Philippines?
Governing Law
In January 29, 1973, the late President Ferdinand E.
Marcos signed the Presidential Decree No. 114,
known as the “Pawnshop Regulation Act”. This law
was
made
to
regulate
the
establishments
of
pawnshops and to place their operations on a sound
and stable basis.
151
Definition Of Terms
As stated in the Presidential Decree, the following
terms are used and shall be defined as follows:
•
Pawnshop - a person or entity engaged in
the business of lending money on personal
property delivered as security for loans and
shall be synonymous, and may be used
interchangeably,
with
pawnbroker
or
pawnbrokerage.
•
Pawner - the borrower from a pawnshop.
•
Pawnee - the pawnshop or pawnbroker.
•
Pawn - the personal property delivered by
the pawner to the pawnee as security for a
loan.
•
Pawn Ticket - the pawnbrokers' receipt for
a pawn. It is neither a security nor a
printed evidence of indebtedness.
•
Property
-
personal
property
as
may
actually be delivered to the control and
possession of the pawnshop.
152
Roles and Functions Of The Central Bank In The
Pawning Business
Authority is given to the Central Bank to do the
following functions:
•
to
issue
rules
and
regulations
implement
the
provisions
to
contained
herein;
•
to require from pawnshops reports of
condition
and
such
other
reports
necessary to determine compliance with
the provisions of this Decree;
•
to exercise visitatorial powers whenever
deemed necessary;
•
to impose such administrative sanctions
including the imposition of fines for
violations of this Decree and regulations
issued by the Central Bank in pursuance
thereto.
Nature Of Pawnshops
•
Registration
153
A pawnshop may be established as a single
proprietorship, partnership or corporation. Any person
or entity who wishes to engage in the pawning
business must do the following:
o Register
with
the
Bureau
of
Commerce in the case of single
proprietorship or the Securities
and Exchange Commission in the
case of a corporation or any
other association
o Secure
a
license
from
the
appropriate city or municipality
having territorial jurisdiction over
the place of establishment and
operation.
Moreover, they must meet the requirements of
registration with the Central Bank. They must file an
information sheet, under oath, with the Central Bank
before they are given the right to operate. If they
have
met
these
requirements,
then
they
can
commence the operation of their pawnshops.
•
Citizenship Requirements
154
While only Filipino citizens may establish and own a
pawnshop
formed
in
a
single
proprietorship,
partnerships may be possible, provided that 70% of
its capital is owned by Filipino citizens. In the case of
a corporation, at least 70% of the voting capital stock
shall be owned by citizens of the Philippines, or if
there be no capital stock, at least 70% of the
members entitled to vote, shall be citizens of the
Philippines.
•
Amount of Loan
The amount of loan shall be agreed upon by both the
pawner and the pawnee, however, the amount of
loan shall be in no case less than 30% of the
appraised value of the security offered for the loan,
unless the pawner manifests in writing the desire to
borrow a lesser amount.
•
Rate of Interest
No pawnshop shall directly or indirectly stipulate,
charge, demand, take or receive any higher rate or
greater sum or value for any loan or forbearance than
the rate allowed by the Usury Law for such
155
transactions. It shall be unlawful for a pawnshop to
divide the pawn offered by a pawner in order to
collect greater interest and/or to require the pawner
to pay an additional charge as insurance premium for
the safekeeping and conservation of the article
pawned. In addition to interest charges, pawnshops
may impose a maximum service charge of five pesos
(P5.00), but in no case to exceed one per cent (1%)
of the principal loan.
•
Redemption
The pawner who fails to pay his obligation on the
date it falls due may, within ninety days from the date
of maturity of the obligation, redeem the pawn by
payment of the principal of the debt with interest:
Provided,
however,
That
for
computing
interest
due
after
the
purpose
maturity
of
of
the
obligation, the basis shall be the sum of the principal
of the obligation and interest earned at the time the
obligation matured.
•
Penalties
156
A fine of not less than one hundred pesos (P100.00)
and not more than one thousand pesos (P1,000.00)
or imprisonment for not less than thirty days and not
more than one year, or both, at the discretion of the
court, shall be imposed for violations of the provisions
of this Decree and its implementing rules and
regulations:
Provided,
That
if
the
violation
is
committed by a corporation, partnership or an
association, the penalty provided for in this Decree
shall
be
imposed upon
the
directors,
officers,
employees or persons therein responsible for the
offense, without prejudice to civil liabilities arising
from the criminal offense.
157
CHAPTER QUIZ NO. 9
PAWNSHOPS
NAME
DATE
SECTION
SCORE
PART I. CLOZE TEST
Instructions. Fill in the blanks with the best word or
phrase that will complete each sentence.
It
was
the
______________________________
late
(1)
who
declared
the Presidential Decree No. 114, known as the (2)
____________________________.
made
to
regulate
the
This
establishments
law
was
of
(3)
___________________________. Pawnshops are a
person or entity engaged in the business of (4)
_________________ lending on personal property.
The (5) _____________________ is the borrower
from a pawnshop. When a pawnshop lends money to
a pawner, they are given a receipt called a (6)
____________________. The pawner’s item, which is
referred to as the (7) ___________________, is
158
given control to the pawnshop. However, there is still
a higher power that governs pawnshops, which is the
(8)
____________________________________.
They are given the authority to issue rules and
regulations so that pawnshops are in compliance with
PD No. 114.
PART II. SELF-TEST QUESTIONS
1. What are the requirements in establishing a
pawnshop business?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2. Explain the rate of interest in pawnshops.
___________________________________________
___________________________________________
159
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
3. What is the penalty for a pawnshop which violated
the PD No. 114?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
160
CHAPTER 10
BUILDING AND LOAN ASSOCIATES,
NON-STOCK SAVINGS & LOAN
ASSOCIATES AND TRUST
COMPANIES
Guide Questions
1. What are the functions of the Revised NonStock Savings and Loan Association Act of
1997?
2. What are the roles and functions does the
Central Bank play in the pawning business?
3. What are the requirements for starting a
pawning business?
4. Who are allowed to start a pawning business in
the Philipines?
Governing Law
The Republic Act No. 8367 or the Revised Non-Stock
Savings and Loan Association Act of 1997 was
promulgated for the following functions:
161
•
encourage
industry,
accumulation
of
frugality
savings,
and
and
the
judicious
utilization of credit among the members of
non-stock savings and loan associations;
•
regulate and supervise the activities of nonstock savings and loan associations in order to
place their operations on a sound, stable, and
efficient basis to the end that they may be able
to better provide for the establishment of
additional savings and credit facilities in a fair
manner to their members and to curtail or
prevent acts or practices of these Associations
which
are
prejudicial
to
their
members'
interest;
•
lay down the minimum requirements and the
standards under which non-stock savings and
loan Associations may organize and operate;
•
maximize the protection of members of nonstock savings and loan associations against
misfeasance and malfeasance of the trustees
and officers thereof.
162
Nature Of Building And Loan Association
A building and loan association is a depository
financial institution that is federally or state chartered
and specializes in collecting savings deposits from
customers
and
investing
residential mortgage loans.
the
Building
funds
in
and
loan
associations are usually mutually held, meaning that
depositors and borrowers can direct the financial
goals of the organization. They also are referred to as
savings and loan associations.
The difference between a savings bank or thrift and a
building and loan association is that savings banks
generally concentrate on commercial lending to help
businesses and finance ventures or lending that is
secured by other items like credit cards. Building and
loan associations, on the other hand, tend to focus on
residential mortgage lending and promoting home
ownership.
163
CHAPTER QUIZ NO. 10
BUILDING
AND
LOAN
ASSOCIATES,
NON-
STOCK SAVINGS & LOAN ASSOCIATES AND
TRUST COMPANIES
NAME
DATE
SECTION
SCORE
PART I. SENTENCE COMPLETION
Instructions. Complete the following sentences
based by providing a word or short phrase.
1. The _______________________ is also known as
the Revised Non-Stock Savings and Loan Association
Act of 1997.
2-3. A building or loan association specializes in
collecting
___________________________
from
customers and investing the funds in residential
___________________________ loans.
4-5. There are differences between a savings bank
and a building and loan association. One of these
differences is that a savings bank focuses on
164
________________ lending. On the other hand, a
building
and
loan
association
focus
on
________________ mortgage lending.
PART II. SELF-TEST QUESTIONS
1. What is the importance of regulating and
supervising the activities of a non-stock savings and
loan associations?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2. What do building and loan associations offer to the
growth of the country’s economy?
___________________________________________
___________________________________________
165
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
\
166
CHAPTER 11
INSURANCE COMPANIES
Guide Questions
1. What governing law was established that
strengthened the insurance industry in the
Philippines?
2. Who can avail of insurance in the country?
3. What are the different types of insurance as
stated in the Insurance Code?
4. Which
governing
office
regulates
the
establishing of insurance companies in the
Philippines?
5. What are the insurance companies found in the
country?
Brief History
The concept of insurance was first introduced to
Filipinos during the Spanish colonization in the
Philippines. In 1898, life insurance was further
167
acknowledged because of the entry of Sun Life
Assurance of Canada in the Philippines.
Since then, domestic life and non-life insurance
companies
were
organized
and
established
throughout the country. The insurance market was
further strengthened because of the establishment of
the Government Service Insurance System or GSIS in
1937,
which
covers
insurance
to
government
employees and Social Security System or SSS in 1954,
which covers employees of the private sector.
In
1974,
the
Presidential
Decree
612
was
promulgated, ordaining and instituting the Republic
Act no. 10607 or the Insurance Code of the
Philippines. In 2012, the PD 612 was amended under
former President Noynoy Aquino’s term, further
strengthening the insurance industry.
Governing Law
As stated in the Presidential Decree 612, every
corporation,
authorized
partnership,
to
transact
or
association,
insurance
business
duly
as
elsewhere provided in this Code, may be an insurer.
168
Anyone except a public enemy may be insured, as
well.
Every person has an insurable interest in the life and
health of:
•
Himself, of his spouse and of his children;
•
Any person on whom he depends wholly or
in part for education or support, or in whom
he has a pecuniary interest;
•
Any person under a legal obligation to him
for the payment of money, or respecting
property or services, of which death or
illness
might
delay
or
prevent
the
performance; and
•
Any person upon whose life any estate or
interest vested in him depends.
Nature Of The Insurance Code
There are different classes of insurance, as stated in
the Insurance Code of the Philippines. They are as
follows:
169
•
Marine Insurance - insurance against, or
against legal liability of the insured for loss,
damage, or expense incident to ownership,
operation, chartering, maintenance, use,
repair, or construction of any vessel, craft
or instrumentality in use of ocean or inland
waterways, including liability of the insured
for personal injury, illness or death or for
loss of or damage to the property of
another person.
•
Fire Insurance - insurance against loss by
fire,
lightning,
windstorm,
tornado
or
earthquake and other allied risks, when
such risks are covered by extension to fire
insurance
policies
or
under
separate
policies.
•
Casualty Insurance - insurance covering
loss or liability arising from accident or
mishap, excluding certain types of loss
which by law or custom are considered as
falling exclusively within the scope of other
types of insurance such as fire or marine. It
includes, but is not limited to, employer’s
170
liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary
and theft insurance, personal accident and
health insurance as written by non-life
insurance
companies,
and
other
substantially similar kinds of insurance.
•
Suretyship - an agreement whereby a party
called
the
surety
guarantees
the
performance by another party called the
principal or obligor of an obligation or
undertaking in favor of a third party called
the
obligee.
recognizances,
It
includes
stipulations,
official
bonds
or
undertakings issued by any company by
virtue of and under the provisions of Act
No. 536, as amended by Act No. 2206.
•
Life Insurance - insurance on human lives
and
insurance
appertaining
thereto
or
connected therewith.
•
Microinsurance - a financial product or
service that meets the risk protection needs
of the poor where:
171
o The amount of contributions, premiums,
fees or charges, computed on a daily
basis, does not exceed seven and a half
percent (7.5%) of the current daily
minimum wage rate for nonagricultural
workers in Metro Manila.
o The
maximum
sum
of
guaranteed
benefits is not more than one thousand
(1,000) times of the current daily
minimum wage rate for nonagricultural
workers in Metro Manila.
Insurance
Commission
(IC)
Roles
in
the
Insurance Industry
The Insurance Commission is the insurance regulator.
It is a government agency under the Department of
Finance. The Commission supervises and regulates
the
operations
of
insurance
and
reinsurance
corporations, which need to be authorized.
Pre-need companies, companies that provide preneed contracts, being contracts for the provision of
future payments or services including life, pension,
172
education and interment, must also be licensed by the
Insurance Commission.
Insurance agents, general agents, resident agents,
underwriters,
insurance
brokers,
adjusters
and
actuaries must be licensed as well.
Top Insurance Companies In The Philippines
The Insurance Commission (IC) released
the latest
performance of life insurance companies in the
Philippines of 2017. They are ranked based on their
premium income collected in 2017. Premium income
includes all the premiums paid by policy holders to
the company.
TOP
TEN
INSURANCE
COMPANIES
IN
THE
PHILIPPINES
Based on the Premium Income for the Year 2017
Name of Company
Premium Income
Sun Life of Canada (Phils)
Inc
Philippine
AXA
Insurance Corp.
Life
Php 32,114,016,858
Php 26,184,554,497
173
BPI Philam Life Assurance
Corp. Inc.
Philippine American Life &
Gen. Ins. Co. (Life Unit)
Pru Life Insurance Corp.
of U.K.
Manufacturers
Life Ins.
Co. (Phil.) Inc.
Insular Life Assce. Co.
Ltd.
BDO Life Assce. Co., Inc.
Manulife Chinabank Life
Assce. Corp.
United Coconut Planters
Life Assce. Corp.
Php 20,329,487,893
Php 19,896,346,899
Php 19,221,205,565
Php 17,638,454,537
Php 11,675,268,038
Php 9,871,458,393
Php 8,211,129,912
Php 6,506,929,156
174
CHAPTER QUIZ NO. 11
INSURANCE COMPANIES
NAME
DATE
SECTION
SCORE
PART I. IDENTIFICATION
Instructions. Identify the type of insurance being
described in the sentences.
__________________ 1. This is an insurance on
human lives and insurance appertaining thereto or
connected therewith.
__________________
2.
This
is
an
insurance
covering loss or liability arising from accident or
mishap, excluding certain types of loss from fire or
marine.
__________________ 3. It is a financial product or
service that meets the risk protection needs of the
poor.
__________________ 4. This
is
an
agreement
whereby a party called the surety guarantees the
175
performance by another party called the principal or
obligor of an obligation or undertaking in favor of a
third party called the obligee.
__________________ 5. It is an insurance against
loss
by
fire,
lightning,
windstorm,
tornado
or
earthquake and other allied risks.
PART II. SELF-TEST QUESTIONS
1. Explain briefly the history of insurance companies
in the Philippines.
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
176
2. What are the roles if the Insurance Commission?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
177
CHAPTER 12
INVESTMENT COMPANIES
Guide Questions
1. What law governs over the foreign investments
in the Philippines?
2. What are the types of investments?
3. What
governing
office
regulates
the
supervision of the corporate sector and the
investing public?
4. What are the roles and functions of the
Securities and Exchange Commission?
Governing Law On Investment Companies
In 1991, Republic Act No. 7042 was promulgated to
promote
foreign
investments,
prescribe
the
procedures for registering enterprises doing business
in the Philippines so as to contribute to the national
industrialization and socio-economic development of
the country. It is known as the Foreign Investment
Act of 1991.
178
Foreign
investments
shall
be
encouraged
in
enterprises that significantly expand livelihood and
employment opportunities for Filipinos; enhance
economic value of farm products; promote the
welfare of Filipino consumers; expand the scope,
quality and volume of exports and their access to
foreign markets; and/or transfer relevant technologies
in agriculture, industry and support services.
Foreign
investments
shall
be
welcome
as
a
supplement to Filipino capital and technology in those
enterprises serving mainly the domestic market.
There are no restrictions on the extent of foreign
ownership of export enterprises. In domestic market
enterprises, foreigners can invest as much as 100%
equity except in areas included in the negative list.
Foreign-owned firms catering mainly to the domestic
market shall be encouraged to undertake measures
that will gradually increase Filipino participation in
their businesses by taking in Filipino partners, electing
Filipinos to the board of directors, implementing
transfer of technology to Filipinos, generating more
179
employment for the economy and enhancing skills of
Filipino workers.
Definition Of Terms
As stated in the Foreign Investment Act of 1991,
these are the terms used.
•
Philippine National - a citizen of the
Philippines
or
a
domestic
partnership
or
association wholly owned by citizens of the
Philippines; or a corporation organized under
the laws of the Philippines of which at least
60% of the capital stock outstanding and
entitled to vote is owned and held by citizens
of the Philippines or a corporation organized
abroad and registered as doing business in the
Philippine under the Corporation Code of which
100% of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or
a trustee of funds for pension or other
employee retirement or separation benefits,
where the trustee is a Philippine national and
at least 60% of the fund will accrue to the
180
benefit of Philippine nationals: Provided, That
where
a
corporation
and
its
non-Filipino
stockholders own stocks in a Securities and
Exchange
Commission
(SEC)
registered
enterprise, at least 60% of the capital stock
outstanding and entitled to vote of each of
both corporations must be owned and held by
citizens of the Philippines and at least 60% of
the members of the Board of Directors of each
of both corporations must be citizens of the
Philippines, in order that the corporation shall
be considered a Philippine national.
•
Investment - equity participation in any
enterprise organized or existing under the laws
of the Philippines.
•
Foreign Investment - equity investment
made by a non-Philippine national in the form
of foreign exchange and/or other assets
actually transferred to the Philippines and duly
registered with the Central Bank which shall
assess and appraise the value of such assets
other than foreign exchange.
181
•
Export Enterprise - enterprise wherein a
manufacturer, processor or service (including
tourism)
enterprise
exports
sixty
percent
(60%) or more of its output, or wherein a
trader purchases products domestically and
exports sixty percent (60%) or more of such
purchases.
•
Domestic Market Enterprise - enterprise
which products goods for sale, or renders
services to the domestic market entirely or if
exporting a portion of its output fails to
consistency export at least 60% thereof.
•
Foreign Investments Negative List or
Negative List - a list of areas of economic
activity whose foreign ownership is limited to a
maximum of 40% of the equity capital of the
enterprises engaged therein.
Types of Investments
•
Debt
Instruments
-
When
the
government or a corporation needs to raise
cash,
it
may
borrow
from
investors.
A
corporation can borrow privately from lending
182
institutions
using
promissory
notes.
A
corporation can also borrow publicly by issuing
commercial papers which are registered with
the SEC. On the other hand, the government
can
borrow
from
the
public
through
instruments such as treasury bills, notes and
bonds. Since debt instruments are normally
longer-term investments, interest payments
tend to be higher than term deposits.
•
Stocks - A common stock is a unit of
ownership in a corporation for which the holder
can vote on corporate matters and receive
dividends
from
the
company's
earnings.
Therefore, when the investor purchases a
stock, he becomes a part-owner of the whole
company.
Although investing in stocks involves higher
risks versus investing in debt or money market
instruments, you can take advantage of the
higher earning potential that can be gained
from stocks through capital appreciation and
dividends.
183
Furthermore,
stock
investments
have
in
general outperformed bond and money market
instruments over time.
•
Funds - An investment fund pools
money from unrelated investors with similar
investment objectives. The fund is managed by
a portfolio manager who invests the money in
a portfolio of securities and / or other
instruments
according
to
the
specified
investment objectives.
A fund offers several distinct benefits to
investors:
As a single investor, it may be difficult to
achieve diversification. Funds enable you to
purchase various types of securities and other
instruments to build a diversified portfolio. The
fund is managed by experienced professionals
who have access to information on the
economy and market movements.
Through the fund, you can invest in a
diversified
portfolio,
enjoying
the
same
earnings potential from the securities that
would have been accessible exclusively to
184
institutional investors. Funds make it possible
for investors to buy instruments at a lower
cost.
When
instruments,
the
the
fund
cost
buys
of
different
buying
these
instruments is divided among all investors
versus the sole investor bearing the total cost.
•
Savings Account - Savings accounts are
a safe haven to store your emergency funds.
They provide easy access to your money and
are generally insured. If you or your family’s
deposit accounts at one FDIC-insured bank or
savings association total $100,000 or less, your
funds are fully insured. The chief drawback of
such accounts is that interest rates tend to be
low since they offer a very high degree of
safety.
•
Certificates of Deposit or CDs - A CD is a
special type of deposit account that typically
offers a higher rate of interest than a regular
savings account. Just like savings accounts,
CDs are also insured up to $100,000. When
you purchase a CD, you invest a fixed sum of
money for fixed period of time. Usually, the
185
longer the period, higher is the interest rate.
There are penalties for early withdrawal.
•
Money Market Deposit Accounts - These
accounts generally earn higher interest than
savings accounts. They are very safe and
provide easy access to your money. They are
also insured by the FDIC. They offer many of
the services that checking accounts offer,
however, a limit is normally placed on the
number of withdrawals or transfers you can
make during a given period of time.
•
Bonds - A bond is a certificate of debt
issued by the government or a company with a
promise to pay a specified sum of money at a
future date and carries interest at a fixed rate.
Bond terms can range from a few months to 30
years. Bonds are tradable instruments and are
generally considered safer than stocks because
bondholders are paid before stockholders if a
company
becomes
bankrupt.
Independent
bond-rating agencies rate the likelihood that
any given bond will default.
186
•
Mutual Funds - A mutual fund is
generally a professionally managed pool of
money from a group of investors. A mutual
fund manager invests your funds in securities,
including stocks and bonds, money market
instruments or some combination of these,
based upon the fund’s investment objectives.
•
Annuities - Annuities are contracts sold
by an insurance company designed to provide
payments to the holder at specified intervals,
usually after retirement. Earnings cannot be
withdrawn without penalty until a specified age
and are taxed only at the time of withdrawal.
Annuities
are
relatively
safe,
low-yielding
investments. An annuity has a death benefit
equivalent to the higher of the current value of
the annuity or the amount the buyer has paid
into it.
187
Investment Houses And Securities Broker /
Dealer
•
SECURITIES
AND
EXCHANGE
COMMISSION - The Securities and Exchange
Commission (SEC) or the Commission is the
national
government
regulatory
agency
charged with supervision over the corporate
sector, the capital market participants, the
securities and investment instruments market,
and the investing public. Created on October
26, 1936 by Commonwealth Act (CA) 83 also
known as The Securities Act, the Commission
was tasked to regulate the sale and registration
of securities, exchanges, brokers, dealers and
salesmen. Subsequent laws were enacted to
encourage investments and more active public
participation
in
the
affairs
of
private
corporations and enterprises, and to broaden
the Commission’s mandates. Recently enacted
laws gave greater focus on the Commission’s
role to develop and regulate the corporate and
capital
market
toward
good
corporate
188
governance (CG); empowerment of investors,
corporators, and entrepreneurs; and effective
access to financial products and resources. The
following laws are enacted to widen the
Commission’s mandates, powers and functions.
1.
The SEC Reorganization Act or
Presidential Decree (PD) 902-A in 1976,
as subsequently amended by PDs 1653,
1758
and
1799,
reorganized
the
Commission to give it ample powers to
protect the public and their investments.
Under the Act, the Commission was
reorganized into a collegial body; and
was
given
additional
powers
and
functions, including quasi-judicial powers
over intra-corporate disputes as well as
absolute jurisdiction, supervision and
control
over
all
corporations,
partnerships or associations, that are the
grantees of primary franchise and/or a
license
or
government
permit
to
issued
by
the
operate
in
the
Philippines.
189
2.
The Corporation Code of the
Philippines or the Batas Pambansa
(BP) 68 in 1980 gave the SEC the
mandate to register corporations, collect
fees from registering corporations, and
prescribe
reportorial
requirements.
Along with the granting of authority to
register 19 corporations, it empowered
the
SEC
to
incorporation
reject
or
articles
disapprove
of
any
amendment thereto if the same is not in
compliance with the requirements of BP
68.
3.
The Revised Securities Act or
BP 178 in 1982 repealed CA 83 in its
entirety to give way to a new statute
that would enable the SEC to keep pace
with new and more complex securities
instruments,
trading
vehicles
and
strategies. The BP 178 provided, among
others,
for
a
more
sophisticated
disclosure mechanism of securities to be
offered to investors.
190
4.
The
Securities
Regulation
Code (SRC) or Republic Act (RA) 8799
in
2000
provided
for
the
SEC
reorganization to give greater focus on
the Commission’s role in capital market
development, fostering good CG and
enhancing investor protection. The SRC
also provided for the transfer of the
Commission’s jurisdiction over all cases
enumerated under Section 5 of PD 902A to the Courts of general jurisdiction or
the appropriate Regional Trial Court
(RTC). The SRC also defined in clear
terms
fraud
and
criminal
offenses
related to securities transactions, and
strengthened SEC regulatory functions
over all entities dealing in securities such
as Self-Regulatory Organizations (SROs)
or the Philippine Stock Exchange (PSE),
Philippine
Dealing
and
Exchange
Corporation (PDEx) and Capital Market
Integrity Corporation (CMIC), as well as
191
market professionals such as brokers
and dealers, among others.
5.
The
Credit
Information
System Act (CISA) or RA 9510 in 2008
mandated the SEC to be the lead
government agency to implement and
enforce the said Act. It designated the
Chairman of the SEC to be the Chairman
of the Board of Directors of the Credit
Information Corporation, whose primary
purpose is to receive and consolidate
basic credit data; to act as a central
registry or central repository of credit
information; and to provide access to
reliable, standardized information on
credit history and financial condition of
borrowers.
6.
The
Microfinance
Nongovernment
Organizations
(NGOs) Act or RA 10693 in 2015
mandated the SEC to establish an
accrediting body to be known as the
Microfinance NGO 21 Regulatory Council
192
which shall, among others, institute and
operationalize a system of accreditation
for Microfinance NGOs; issue certificate
of accreditation as a Microfinance NGO
upon determination that the criteria set
for
this
purpose
have
been
fully
satisfied; and monitor the performance
of
Microfinance
continuing
NGOs
to
compliance
ensure
with
the
provisions of the Act and its IRR. The
Chairman of the SEC or designated
representative
shall
serve
as
the
Chairperson of the Council; and the
Council shall be assisted by a secretariat
to be lodged in the SEC, which shall
coordinate the activities involved in the
accreditation process.
Today,
the
responsibility
of
SEC
is
tasked
enforcing
all
with
“serious
laws
affecting
corporations and other forms of associations not
otherwise vested in some other government offices.”
193
In addition to the aforementioned laws, the
Commission also implements and acts either as lead
or support agency in administering and enforcing
special laws, the more significant of which are:
•
Anti-Money Laundering Act of 2001 (RA 9160,
as amended) [The SEC Chair is a member of
the Anti-Money Laundering Council (AMLC),
with the Bangko Sentral ng Pilipinas (BSP)
Governor as Chairman and the Insurance
Commission (IC) Commissioner as another
member]
•
Lending Company Regulation Act of 2007 (RA
9474) (LCRA)
•
Financing
Company
Act
(RA
5980,
as
amended) (FCA)
•
Investment Company Act (RA 2629) (ICA)
•
Investment Houses Law (PD 129)
•
Retail Trade Liberalization Act of 2000 (RA
8762)
•
Foreign Investments Act of 1991 (RA 7402, as
amended)
•
Omnibus Investments Code of 1987 (Executive
Order 226, Book III)
194
•
Anti-Dummy Law (CA 108, as amended)
•
Civil Code of the Philippines (RA 386, Title IX –
Partnership)
•
Securitization Act of 2004 (RA 9267)
•
Real Estate Investment Trust Act of 2009 (RA
9856)
•
Personal Equity and Retirement Account Act of
2008 (RA 9505)
Functions
of
Securities
and
Exchange
Commission
The Commission shall have the powers and functions
provided
by
the
Securities
Regulation
Code,
Presidential Decree No. 902-A, as amended, the
Corporation Code, the Investment Houses Law, the
Financing Company Act, and other existing laws.
Under Section 5 of the Securities Regulation Code,
Rep. Act. 8799, the Commission shall have, among
others, the following powers and functions:
•
Have jurisdiction and supervision over
all corporations, partnerships or associations
who are the grantees of primary franchises
195
and/or a license or permit issued by the
Government;
•
Formulate
policies
and
recommendations on issues concerning the
securities market, advise Congress and other
government agencies on all aspects of the
securities market and propose legislation
and amendments thereto;
•
Approve, reject, suspend, revoke or
require
amendments
to
registration
statements, and registration and licensing
applications;
•
Regulate, investigate or supervise the
activities of persons to ensure compliance;
•
Supervise, monitor, suspend or take
over the activities of exchanges, clearing
agencies and other SROs;
•
Impose sanctions for the violation of
laws and the rules, regulations and orders
issued pursuant thereto;
•
Prepare, approve, amend or repeal
rules, regulations and orders, and issue
opinions and provide guidance on and
196
supervise
compliance
with
such
rules,
regulations and orders;
•
Enlist the aid and support of and/or
deputize any and all enforcement agencies
of the Government, civil or military as well
as any private institution, corporation, firm,
association or person in the implementation
of its powers and functions under this Code;
•
Issue cease and desist orders to prevent
fraud or injury to the investing public;
•
Punish for contempt of the Commission,
both direct and indirect, in accordance with
the pertinent provisions of and penalties
prescribed by the Rules of Court;
•
Compel the officers of any registered
corporation or association to call meetings of
stockholders or members thereof under its
supervision;
•
Issue
subpoena
duces
summon
witnesses
to
tecum
appear
in
and
any
proceedings of the Commission and in
appropriate cases, order the examination,
search and seizure of all documents, papers,
197
files and records, tax returns, and books of
accounts of any entity or person under
investigation as may be necessary for the
proper disposition of the cases before it,
subject to the provisions of existing laws;
•
Suspend, or revoke, after proper notice
and hearing the franchise or certificate of
registration of corporations, partnerships or
associations, upon any of the grounds
provided by law;
•
Exercise such other powers as may be
provided by law as well as those which may
be implied from, or which are necessary or
incidental to the carrying out of, the express
powers granted the Commission to achieve
the objectives and purposes of these laws.
198
CHAPTER QUIZ NO. 12
INVESTMENT COMPANIES
NAME
DATE
SECTION
SCORE
PART I. TRUE OR FALSE
Instructions. Write the capital letters TRUE if the
statement is correct and the capital letters FALSE if
the statement is incorrect.
__________ 1. The Foreign Investment Act of 1992
was established to promote foreign investments in the
country.
__________ 2. Foreign investments can only invest
as much as 50% equity except in some areas
included in the negative list.
__________ 3. An export enterprise is an enterprise
wherein
a
manufacturer,
processor
or
service
enterprise exports 60% or more of its output.
199
__________ 4. Stocks are certificates of debt issued
by the government or a company with a promise to
pay a specified sum of money at a future date and
carries interest at a fixed rate.
__________ 5. A mutual fund is generally a
professionally managed pool of money from a group
of investors.
__________
6.
The
Securities
and
Exchange
Commission is the national government regulatory
agency charged with supervision over the corporate
sector, the capital market participants, the securities
and investment instruments market, and the investing
public.
__________ 7. The Commonwealth Act or the
Securities Act was tasked to regulate the sale and
registration of securities, exchanges, brokers, dealers
and salesmen.
__________ 8. Annuities are a special type of deposit
account that is insured up to $100,000. When you
purchase annuities, you invest a fixed sum of money
for a fixed period of time.
200
__________ 9. A mutual fund pools money from
unrelated investors with similar investment objectives.
__________ 10. A fund is generally a professionally
managed pool of money from a group of investors.
PART II. MULTIPLE CHOICE
Instructions. Choose the letter that will best match
with the descriptions given.
1. This is a unit of ownership in a corporation for
which the holder can vote on corporate matters and
receive dividends from the company's earnings.
a. Stocks
b. Debt Instruments
c. Mutual Funds
2. A type of investment wherein the government or a
corporation raises cash by borrowing from investors.
a. Savings Account
b. Bonds
c. Debt Instruments
3. These are contracts sold by an insurance company
designed to provide payments to the holder at
specified intervals, usually after retirement.
201
a. Mutual Funds
b. Annuities
c. Bonds
4. This is an equity participation in any enterprise
organized
or
existing
under
the
laws
of
the
Philippines.
a. Foreign investment
b. Investment
c. Export Enterprise
5. This is an equity investment made by a nonPhilippine national in the form of foreign exchange
and/or other assets actually transferred to the
Philippines.
a. Foreign investment
b. Investment
c. Export Enterprise
PART III. SELF-TEST QUESTIONS
1. Which of the type of investments do you prefer
and why?
202
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
2. What does the Securities and Exchange
Commission implement to the betterment of
investments in the country?
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
203
________________________________________
________________________________________
________________________________________
204
CHAPTER 13
FINANCING COMPANIES
Guide Questions
1. What law was passed and enacted to regulate
and promote financing companies in the
country?
2. What are the powers and functions of the
Financing Company Act?
3. What are some of the financial companies
established in the Philippines?
Governing Law
In February 1998, the Republic Act No. 8556 or
known as the “Financing Company Act of 1998” was
approved. It is declared to regulate and promote the
activities of financing and leasing companies to place
their operations on a sound, competitive, stable and
efficient basis as other financial institutions.
205
Definition of Terms
As used in the Act, the terms are used and defined as
follows:
•
Financing Companies - are corporations,
except banks, investments houses, savings
and
loan
companies,
associations,
cooperatives,
insurance
and
other
financial institutions organized or operating
under
other
special
laws,
which
are
primarily organized for the purpose of
extending credit facilities to consumers and
to industrial, commercial, or agricultural
enterprises,
by
direct
lending
or
by
discounting or factoring commercial papers
or accounts receivable, or by buying and
selling
contracts,
mortgages,
or
other
leases,
chattel
evidences
of
indebtedness, or by financial leasing of
movable as well as immovable property.
•
Securities and Exchange Commission - the
national government regulatory agency
charged
with
supervision
over
the
206
corporate
sector,
the
capital
market
participants, the securities and investment
instruments market, and the investing
public.
•
Credit - any loan, mortgage, financial
lease, deed of trust, advance or discount,
any conditional sales contract, contract to
sell, or sale or contract of sale of property
or service, either for present or future
delivery, under which, part of all or the
price is payable subsequent to the making
of such sale or contract; any contract, any
option, demand, lien or pledge, or to the
other claims against, or for the delivery of,
property or money, any purchase, or other
acquisition of or any credit upon the
security of, any obligation or claim arising
out of the foregoing, and any transaction
or series of transactions having similar
purpose or effect.
•
Financial Leasing - a mode of extending
credit through a non-cancelable lease
contract under which the lessor purchases
207
or acquires, at the instance of the lessee,
machinery,
equipment,
motor
vehicles,
appliances, business and office machines,
and other movable or immovable property
in consideration of the periodic payment by
the lessee of a fixed amount of money
sufficient to amortize at least seventy
(70%) of the purchase price or acquisition
cost.
•
Purchase
Discount
-
the
difference
between
the
of
the
receivable
value
purchased or credit assigned, and the net
amount paid by the finance company for
such purchases or assignment, exclusive of
fees, services, charges, interest and other
charges incident to the extension of credit.
•
Lease Rentals - the periodic payments
made by the lessee to the lessor.
Powers and Functions of Financing Companies
•
Engage
in
quasi-banking
and
money
market operations with the prior approval
of the Bangko Sentral ng Pilipinas;
208
•
Engage in trust operations subject to the
provisions of the General Banking Act upon
prior approval by the Bangko Sentral ng
Pilipinas;
•
Issue bonds and other capital instruments
subject to pertinent rules and regulations
of the Bangko Sentral ng Pilipinas;
•
Rediscount their paper with government
financial institutions subject to relevant
laws, rules and regulation;
•
Participate
in
special
loan
or
credit
programs sponsored by or made available
through government financial institutions;
•
Provide foreign currency loans and leases
to enterprises who earn foreign currency
by exports or other means, subject to
existing laws and rules and regulations
promulgated by the Bangko Sentral ng
Pilipinas.
209
Finance Companies in the Philippines
•
BancNet - BancNet is the Philippines single
ATM switch operator. It is a multi-bank,
multichannel electronic payments network
that enables its members’ customers to
transact not only at Automated Teller
Machines (ATM) but also at point- of- sale
(P.O.S.) terminals, the Internet and mobile
phones. It started operations on July 17,
1990. BancNet provides a wide range of
services through the different channels, such
as balance inquiry, checkbook re-order,
statement request, interbank fund transfer,
payment of bills, prepaid phone and Internet
reloading, payment of purchases by direct
debit to account, and remittance of taxes,
Pag-IBIG, PhilHealth and Social Security
System contribution and loan repayments.
•
Bankard - It is one of the largest credit
card issuers in the Philippines, issuing
VISA, MasterCard, JCB and CUP credit
cards. It also issued its own line of credit
and debit cards in the 1990s.
210
Bankard is known for being the first
card company to launch a catalog-free
Rewards Program and a simplified, nohassle installment conversion feature that
allows cardholders to convert their retail
purchases to installment just by calling the
RCBC
Bankard
Customer
Service.
Cardholders can likewise avail themselves
of
flexible
and
easy-on-the-pocket
installment packages through the RCBC
Bankard
Installment
facility
that
also
includes 0% interest installment.
•
Beep (AF Payments Inc.) - AF Payments
Inc. is a joint venture of the Ayala and First
Pacific groups that provides contactless
payment solutions to the Filipino public.
The
company
partnership
of
was
forged
two
of
the
by
the
largest
conglomerates in the Philippines through
their
participation
in
a
Public-Private
Partnership (PPP) Project to unify the
Automated Fare Collection System of three
211
rail transport lines (LRT1, LRT2, and
MRT3).
•
MegaLink
-
It
is
a
Philippine-based
developer of mobile and banking software
as well as a service provider for banks,
specifically for ATM networks and point of
sale systems of banks in the country. From
its establishment in 1989 until 2015, it
pioneered the interconnectivity of several
banks in the country by way of being the
first interbank network with different banks
as its members.
•
Expressnet - Expressnet was founded on
February 14, 1986, when the ATMs of Bank
of the Philippine Islands (BPI) and its
subsidiary, BPI Family Savings Bank, the
founders of Expressnet, were connected
for the first time. However it wasn’t until
late in 1991, that a non linked bank,
Landbank, joined the consortium, with
HSBC following in 1992 and Banco de Oro
(BDO) in 1995. Effectively, Expressnet was
the third ATM consortium to be created in
212
the Philippines. The current bank members
using Expressnet as their primary network
are BDO, BPI, BPI Family Savings Bank,
BPI Direct Savings Bank, Land Bank of the
Philippines.
•
Encash
Network
Services
-
Electronic
Network Cash Tellers, Inc. or ENCASH, has
made great inroads in providing ATM
service to the Philippine countryside. As the
first Independent ATM Deployer in the
Philippines, ENCASH provides privatelyowned ATMs to areas not deemed viable
by commercial banks, allowing users in
remote locations to conveniently obtain
access to their finances. More than 300
ENCASH ATMs may be found in over 150
partner rural banks, cooperatives, tourist
destinations, town halls, and other partner
entities in more than 55 provinces all over
the country. Recently, ENCASH introduced
the Retail Teller Machine (RTM) to the
country. Similar to an ATM, it dispenses
vouchers that can
be exchanged for
213
money. The ENCASH RTMs may be found
in resorts and some financial institutions.
ENCASH
started
its
operations
on
December 2007 with only five (5) ATMs. In
less than 7 years, ENCASH has more than
300 ATMs and RTMs deployed and running
with
others
in
early
stages
of
implementation in Luzon, Visayas and
Mindanao.
In
the
cooperative
space,
ENCASH has partnered with more than 30
Cooperatives
throughout
the
country.
Several more partnerships are in the
pipeline. ENCASH is the first non-bank
member of MegaLink. It has the secondlargest number of ATMs in the MegaLink
network.
•
The Philippine Dealing and Exchange Corp
- The Philippine Dealing & Exchange Corp.
(PDEx)
was
incorporated
in
2003
to
provide trading infrastructure for the fixedincome (FI) market. As a Securities and
Exchange Commission (SEC)-registered FI
Securities
Market,
PDEx
operates
the
214
organized secondary market for the trading
of
FI
securities
Government
and
which
includes
Corporate
both
Securities.
PDEx, as an SRO, has been given authority
by the SEC to create and enforce its own
rules, monitor and enforce compliance with
securities
laws
and
regulations,
and
enforce fair, ethical and efficient practices
in the securities market with the primordial
objective of investor protection. It enables
the maintenance of a level playing field
among players in the market, to assure
investors of fairness and safety in the
marketplace. PDEx is also responsible for
calculating the Philippine Dealing System
Treasury Reference Rates (PDST Rates).
This system may be used as the basis for
valuing and marking-to-market interest
rate-sensitive instruments.
•
The Philippine Stock Exchange - It is the
only stock exchange in the Philippines. It is
one of the oldest stock exchanges in Asia,
having been in continuous operation since
215
the establishment of the Manila Stock
Exchange in 1927. It currently maintains a
trading floor at the PSE Tower in Bonifacio
Global City, Taguig City. The PSE is
composed of a 15-man Board of Directors
with Jose T. Pardo as Chairman. The main
index for PSE is the PSEi, which is
composed of a fixed basket of thirty (30)
listed companies. The PSEi measures the
relative changes in the free float-adjusted
market capitalization of the 30 largest and
most active common stocks listed at the
PSE. The selection of companies in the
PSEi is based on a specific set of public
float, liquidity and market capitalization
criteria. There are also six sector-based
indices as well as a broader all shares
index.
216
CHAPTER QUIZ NO. 13
FINANCING COMPANIES
NAME
DATE
SECTION
SCORE
PART I. IDENTIFICATION
Instructions. Identify the terms that best match
with the descriptions.
____________________ 1. These are the periodic
payments made by the lessee to the lessor.
____________________ 2. These are corporations
primarily organized for the purpose of extending
credit facilities to consumers.
____________________ 3. This is the national
government
regulatory
agency
charged
with
supervision over the corporate sector, the capital
market participants, the securities and investment
instruments market, and the investing public.
____________________
4.
It
is
the
difference
between the value of the receivable purchased or
217
credit assigned, and the net amount paid by the
finance company for such purchases or assignment
____________________ 5. It is a mode of extending
credit through a non-cancelable lease contract under
which the lessor purchases or acquires
PART II. MULTIPLE CHOICE
Instructions. Match the descriptions with the
appropriate finance company.
1. It is one of the largest credit card issuers in the
Philippines, issuing VISA, MasterCard, JCB and CUP
credit cards. It also issued its own line of credit and
debit cards in the 1990s.
a. Bankard
b. Beep
c. Expressnet
2. It was incorporated in 2003 to provide trading
infrastructure for the fixed-income (FI) market.
a. Bankard
b. PDex
c. Encash
218
3. It is the only stock exchange in the Philippines. It is
one of the oldest stock exchanges in Asia, having
been in continuous operation since the establishment
of the Manila Stock Exchange in 1927.
a. MegaLink
b. Expressnet
c. Phippine Stock Exchange
4. It was founded on February 14, 1986, when the
ATMs of Bank of the Philippine Islands (BPI) and its
subsidiary, BPI Family Savings Bank, were connected
for the first time.
a. Expressnet
b. Beep
c. Encash
5. It is a joint venture of the Ayala and First Pacific
groups that provides contactless payment solutions to
the Filipino public.
a. PDex
b. MegaLink
c. Beep
219
PART III. SELF-TEST QUESTIONS
1. What are the powers and functions of financing
companies? Give at least three.
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2.
What
governing
law
was
declared
in
the
establishment of financing companies?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
220
CHAPTER 14
NONBANK FINANCIAL
INSTITUTIONS, CREDIT
COOPERATIVES AND LENDING
COMPANIES
Guide Questions
1. How did credit cooperatives start in the
Philippines?
2. What is the Philippine Cooperative Code of
2008 and what are the underlying principles in
this code?
3. What is money lending and how does it help
the finance growth of the country?
Brief History of Credit Cooperative In The
Philippines
During the 19th century Dr. Jose Rizal, after his side
trip to Sandakan, Borneo in 1892, requested Governor
221
Despudol permission to move to that place and found
a colony under the cooperative plan of Robert Owen.
Instead, he was arrested for treason and banished to
Dapitan, Zamboanga del Norte.
In Dapitan, Rizal had his ideas in cooperation partially
fulfilled. He put up a school for the poor community
and a store with the help of his pupils on a purely
cooperative basis. One noteworthy group organized
by Rizal was the La Sociedad de los Abacaleros
(Society of Abaca Producers). This functioned for only
one year. Rizal returned the members’ share capital
without any loss.
Teodoro Sandiko, in his travels to Europe, must have
had a close contact with the cooperative movement in
Germany where he came across with the Raiffeisen
movement. He was very much impressed by this type
of cooperative that he looked forward for an
opportunity to introduce it in the Philippines.
Finally, Sandiko had his chance when he was
appointed one of the early governors when Civil
Government, under the Americans, was established.
222
As soon as Civil Government was established, Filipino
participation in government was encouraged.
Teodoro Sandiko, then governor of Bulacan, prepared
a bill patterned after the Raiffeisen type of credit
union and had Rep. Albert Barreto of Zambales
sponsored the bill in the lower House of Congress.
The principal aim of this bill was to protect and
develop the agricultural interest of the country. When
the Barreto sponsored bill was presented it readily
obtained unanimous approval on January 20, 1908.
The Philippine Commission however, turned it down.
Undaunted by this defeat, the sponsors of the bill
again put it through in the Second Philippine
Legislature.
This time it was sponsored in the Lower House by
Rep. Rafael Corpuz who succeeded Rep. Barreto. The
bill was ably presented in both Houses and it was
finally passed into law on February 11, 1914 and
became Act 2508. When this Act was finally made
into law, Gov. Sandiko earned the title, Father of
Cooperation in this country. The administration of the
223
Rural Credit Law was entrusted to the Bureau of
Agriculture.
The first rural credit association that was organized
under
this
Law
was
the
Agricultural
Credit
Cooperative Association of Cabanatuan, Nueva Ecija.
It was formed on October 18, 1916. With this initial
organization farmers in different provinces were
organized. At the end of 1926 there were 544 rural
credit cooperatives organized in 42 provinces and by
1930 there were 571 associations formed all over the
country.
In 1935, however, about 90% of these cooperatives
were inactive with no funds left in their treasury. The
experiment on rural financing, through cooperatives
was a failure.
As
soon
as
the
organization
of
rural
credit
cooperatives was in full swing, The Cooperative
Marketing Law (Act 2425) was enacted and approved
on December 9, 1927.
The rural credit associations were designed to help
finance
the
efforts
of
the
farmers
for
more
production. Wherever rural credit associations were,
224
cooperative marketing societies were also designed to
be present. The apparent weakness of the rural credit
cooperatives, however, failed the enthusiasm of
farmers to organize themselves into cooperative
marketing associations.
By 1939 only 164 societies were actually organized
with a total membership of around 5,000 farmers.
With this number only 35 reported their sale of
products to the Bureau of Commerce. The number of
associations reporting indicated that only 20% of the
organized associations were active.
In recognition of the strategic position occupied by
our farmers in the social structure and economic
development of the country, the Philippine Congress
enacted
Republic
Act
821
in
1952.
This
law
established a system of liberal credit which is specially
designed to meet the needs of the small farmers. It
also created an administrative agency known as the
Agricultural
Credit
and
Cooperative
Financing
Administration (ACCFA). To implement the great task
of rural financing, four general and interrelated
objectives of the law were set forth as follows:
225
•
To assist small farmers in securing liberal
credit.
•
To promote the effective groupings of
farmers into cooperative associations.
•
To establish an orderly and systematic
marketing machinery for, and controlled
by, the small farmers.
•
To place agriculture on a basis of economic
equality with other industries.
Governing Law In Credit Cooperative
In February 2009, the Republic Act No. 9520 or the
Cooperative Code of the Philippines was amended to
be known as the Philippine Cooperative Code of 2008.
It was strengthened in order to o foster the creation
and growth of cooperatives as a practical vehicle for
promoting self-reliance and harnessing people power
towards the attainment of economic development and
social justice.
The State shall encourage the private sector to
undertake the actual formation and organization of
226
cooperatives and shall create an atmosphere that is
conducive to the growth and development of these
cooperatives.
Principles of the Cooperative Code of 2008
Every
cooperative
shall
conduct
its
affairs
in
accordance with Filipino culture, good values and
experience and the universally accepted principles of
cooperation which include, but are not limited to, the
following:
•
Voluntary
and
Open
Membership
-
Cooperatives are voluntary organizations, open
to all persons able to use their services and
willing
to
accept
the
responsibilities
of
membership, without gender, social, racial,
cultural, political or religious discrimination.
•
Democrative Member Control - Cooperatives
are
democratic
organizations
that
are
controlled by their members who actively
participate in setting their policies and making
decisions. Men and women serving as elected
representatives,
directors
or
officers
are
227
accountable to the membership. In primary
cooperatives, members have equal voting
rights of one-member, one-vote. Cooperatives
at other levels are organized in the same
democratic manner.
•
Member Economic Participation - Members
contribute equitably to, and democratically
control, the capital of their cooperatives. At
least part of that capital is the common
property of the cooperative. They shall receive
limited compensation or limited interest, if any,
on capital subscribed and paid as a condition of
membership. Members allocate surpluses for
any or all of the following purposes: developing
the cooperative by setting up reserves, part of
which should at least be indivisible; benefitting
members in proportion to their patronage of
the cooperative's business; and, supporting
other activities approved by the membership.
•
Autonomy and Independence - Cooperatives
are
autonomous,
self-help
organizations
controlled by their members. If they enter into
agreements with other organizations, including
228
government, or raise capital from external
sources, they shall do so on terms that ensure
democratic control of their members and
maintain their cooperative autonomy.
•
Education,
Training
and
Information
-
Cooperatives
shall
provide
education
and
training
their
members,
for
elected
and
and
appointed
representatives,
managers,
employees,
so
can
that
they
contribute
effectively and efficiently to the development
of their cooperatives.
•
Cooperation
Among
Cooperatives
serve
their
Cooperatives
members
most
effectively and strengthen the cooperative
movement by working together through local,
national, regional and international structures.
•
Concern for Community - Cooperatives work
for the sustainable development of their
communities through policies approved by their
members.
229
Lending Companies
Money lending business in the Philippines has been an
integral part of the financial stability of the country.
In
order
to
regulate
the
lending
companies
established in the Philippines, the Lending Company
Regulation Act of 2007 was established.
Republic Act No. 9474 or the Lending Company
Regulation Act of 2007 was promulgated to regulate
the establishment of lending companies and to place
their operation on a sound, efficient and stable
condition to derive the optimum advantages from
them as an additional source of credit; to prevent and
mitigate, as far as practicable, practices prejudicial to
public interest; and to lay down the minimum
requirements and standards under which they may be
established and do business.
230
CHAPTER QUIZ NO. 14
NONBANK FINANCIAL INSTITUTIONS, CREDIT
COOPERATIVES AND LENDING COMPANIES
NAME
DATE
SECTION
SCORE
PART I. SHORT ANSWER
Instructions. Discuss the following principles of
cooperation in two to three sentences.
1. Voluntary and Open Membership
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2. Democrative Membership Control
___________________________________________
___________________________________________
___________________________________________
___________________________________________
231
3. Member Economic Participation
___________________________________________
___________________________________________
___________________________________________
___________________________________________
4. Autonomy and Independence
___________________________________________
___________________________________________
___________________________________________
___________________________________________
5. Education, Training and Information
___________________________________________
___________________________________________
___________________________________________
___________________________________________
6. Cooperation among Cooperatives
___________________________________________
___________________________________________
___________________________________________
___________________________________________
232
7. Concern for Community
___________________________________________
___________________________________________
___________________________________________
___________________________________________
PART II. TRUE OR FALSE
Instructions. Write the capital letters TRUE if the
statement is correct and the capital letters FALSE if
the statement is incorrect.
__________
1.
Philippines
was
The
Cooperative
established
to
Code
of
the
strengthen
the
establishments of lending companies in the country.
__________ 2. Money lending businesses are not
prolific in the country and has not made stability
financially.
__________ 3. There is no higher law in which
money lending companies are being regulated.
233
__________ 4. The rural credit associations were
designed to help finance the efforts of the farmers for
more production.
__________ 5. The Philippine Congress enacted
Republic Act 821 in 1952. This law established a
system of liberal credit which is specially designed to
meet the needs of the small farmers.
PART III. SELF-TEST QUESTIONS
1. Discuss the brief history of credit cooperative in the
Philippines.
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
234
2. What is the Cooperative Code of the Philippines?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
235
CHAPTER 15
INTERNATIONAL FINANCIAL
INSTITUTIONS
Guide Questions
1. What are the different international financial
institutions that are helping the country in
financial stability?
2. How would the country benefit in having these
international financial institutions as partners in
economic growth?
Overview of the World Bank
The World Bank is a vital source of financial and
technical assistance to developing countries around
the world. They are not a bank in the ordinary sense
but a unique partnership to reduce poverty and
support development. Established in 1944, the World
Bank Group is headquartered in Washington, D.C. We
236
have more than 10,000 employees in more than 120
offices worldwide.
They have set two goals for the world to achieve by
2030:
1. End
extreme
poverty
by
decreasing
the
percentage of people living on less than $1.90
a day to no more than 3%
2. Promote shared prosperity by fostering the
income growth of the bottom 40% for every
country.
World Bank In The Philippines
The World Bank Group’s (WBG) partnership with the
Philippines
spans
nearly
60
years,
providing
longstanding support for infrastructure as well as
engagement in key sectors including governance,
social protection, water resources and disaster risk
management.
The WBG is also an active partner in helping spur
private sector growth, expanding engagement with
237
civil society, and promoting peace and development
in Mindanao.
The Bank Group’s Country Partnership Strategy (CPS)
for the Philippines from 2015-2019 revolves around
the theme “Making Growth Work for the Poor,”
supporting the country’s goal of inclusive growth that
reduces poverty and creates more and better jobs
that raise real wages. The recently completed midterm review of the strategy arms the continued
relevance of five CPS engagement areas:
•
Transparent
and
government:
accountable
strengthening
public
financial management, improving fiscal
transparency
and
financial
accountability, and supporting greater
citizen
demand
for
government
the
poor
and
and
accountability;
•
Empowerment
of
vulnerable:
improving
health
education
outcomes,
strengthening
social
protection
and
ensuring
the
238
availability of more timely and improved
measurements of poverty;
•
Rapid, inclusive and sustained economic
growth:
promoting
economic
policy
reform for inclusive growth, boosting
private
sector
development
by
improving the investment climate for
firms
of
all
productivity
sizes,
and
and
job
increasing
creation
–
especially in rural areas;
•
Climate
change,
environment
and
disaster risk management: increasing
physical,
financial
and
institutional
resilience to natural disaster and climate
change impacts, and improving natural
resource management and sustainable
development;
•
Peace, institution building, and social
and economic opportunity: supporting
governance,
social
and
economic
development and citizen security and
justice in conflict-affected regions in
Mindanao, including the territory of the
239
proposed new Bangsamoro autonomous
political entity.
International Monetary Fund
The International Monetary Fund, or IMF, promotes
international
financial
stability
and
monetary
cooperation. It also facilitates international trade,
promotes employment and sustainable economic
growth, and helps to reduce global poverty. The IMF
is governed by and accountable to its 189 member
countries.
The IMF was conceived in July 1944 at the United
Nations
Bretton
Woods
Conference
in
New
Hampshire, United States. The 44 countries in
attendance
international
sought
to
economic
build
a
framework
cooperation
and
for
avoid
repeating the competitive currency devaluations that
contributed to the Great Depression of the 1930s.
The IMF's primary mission is to ensure the stability of
the international monetary system—the system of
exchange rates and international payments that
240
enables countries and their citizens to transact with
each other. Their primary aims are as follows:
•
Promote international monetary cooperation;
•
Facilitate the expansion and balanced growth
of international trade;
•
Promote exchange stability;
•
Assist in the establishment of a multilateral
system of payments; and
•
Make resources available (with adequate
safeguards)
to
members
experiencing
balance-of payments difficulties
Asian Development Bank
The Asian Development Bank was conceived in the
early 1960s as a financial institution that would be
Asian in character and foster economic growth and
cooperation in one of the poorest regions in the
world.
A resolution passed at the first Ministerial Conference
on Asian Economic Cooperation held by the United
Nations Economic Commission for Asia and the Far
241
East in 1963 set that vision on the way to becoming
reality.
The Philippines capital of Manila was chosen to host
the new institution, which opened on 19 December
1966, with 31 members that came together to serve a
predominantly agricultural region. Takeshi Watanabe
was ADB's first President.
Asian Development Bank in the Philippines
The
Philippines
is
among
the
fastest-growing
economies in Southeast Asia, with upgrades to
sovereign
improvements
investment
in
fundamentals. The
the
ratings
country’s
confirming
macroeconomic
government has defined its
development objectives as driving rapid but inclusive
economic growth, accelerating employment on a
massive scale, and reducing poverty.
Since 1966, ADB has been a strong partner in the
development of the Philippines, its host country.
242
The forthcoming ADB country partnership strategy,
2018–2023 for the Philippines will focus on three
main pillars:
1. accelerating infrastructure investments,
2. promoting local economic development,
3. increasing social investments.
The strategy also includes crosscutting support to
build inclusive and sustainable growth by promoting
private sector participation, gender equality, climate
change
adaptation
and
mitigation
measures
integrated into local government systems, sustainable
environmental
management,
and
the
use
of
knowledge and innovation in ADB operations.
243
CHAPTER QUIZ NO. 15
INTERNATIONAL FINANCIAL INSTITUTIONS
NAME
DATE
SECTION
SCORE
PART I. IDENTIFICATION
Instructions. Identify the international financial
institutions being described below.
______________________ 1. It was made as a
financial institution that would be Asian in character
and foster economic growth and cooperation in one of
the poorest regions in the world.
______________________ 2. It was established in
1944 and is headquartered in Washington, D.C., with
more than 10,000 employees in more than 120
countries.
______________________ 3. It is governed by and
accountable to its 189-member countries.
______________________ 4. Their main goal is to
end extreme poverty by decreasing the percentage of
244
people living on less than $1.90 a day to no more
than 3%.
______________________ 5. It was established in
July 1944 at the United Nations Bretton Woods
Conference in New Hampshire, United States.
______________________
promotes
6.
international
This
financial
institution
stability
and
monetary cooperation.
______________________ 7. Its host country, the
Philippines, was opened in December 19, 1966, with
31 members.
______________________ 8. It is a vital source of
financial and technical assistance to developing
countries around the world.
______________________ 9. This institution’s first
President was Takeshi Watanabe.
______________________
10.
The
institution’s
primary mission is to ensure the stability of the
international
monetary
system—the
system
of
exchange rates and international payments that
245
enables countries and their citizens to transact with
each other.
PART II. SELF-TEST QUESTIONS
1. Discuss how the World Bank impacted the country.
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
2. What are the focuses of the ADB in the country?
___________________________________________
___________________________________________
___________________________________________
246
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
247
BIBLIOGRAPHY
ADB History Https://Www.Adb.Org/About/History
Bancnet Company Profile
Https://Www.Bancnetonline.Com/Bancnetweb/Vi
ew/Gotositemappage.Do
Bangko Sentral Ng Pilipinas. (2017). A Report On The
Philippine Financial System - 2nd Semester Of
2017. Office Of Supervisory Policy Development.
Bankard Company Profile
Https://Www.Rcbcbankard.Com/
Beep Company Info
Https://Www.Beeptopay.Com/Company-Info.Html
Business Mirror. (2018). Banking In The Philippines.
Central Bank Of The Philippines. (1993). CBP
CIRCULAR NO. 1389 - CONSOLIDATED FOREIGN
EXCHANGE RULES AND REGULATIONS.
Cortinas, V. The Philippine Financial System. Lecture,
Lyceum Of The Philippines University - Cavite.
Encash Https://Www.Encash-Ph.Com/
248
Espenilla Jr., N. (2007). BANKING SUPERVISION AND
EXAMINATION IN THE PHILIPPINES.
Presentation, Tokyo, Japan.
Expressnet Http://Www.Expressnet.Ph
Fohlin, C. (2014). Financial Systems And Economic
Development In Historical Perspective. Johns
Hopkins University And Emory University,
Department Of Economics.
Gilberto M. Llanto. July 1994. The Financial Structure
And Performance Of The Philippine Credit
Cooperatives. Philippine Institute For
Development Studies.
Guide On Investment Laws: Business One-Stop Shop
(BOSS) Action Center BOSSAC.
Https://Www.Immigration.Gov.Ph/
History Of Cooperatives In The Philippines
Http://Www.Cda.Gov.Ph/Cda_Website/Coop%20
history.Htm
International Monetary Fund
Https://Www.Imf.Org/External/Index.Htm
249
Lex Mundi. (2006). Banking Finance And Regulation -
Philippines [Ebook].
Megalink Http://Www.Megalink.Com.Ph/
Paramasivan, C., & Subramanian, T. (2009). Financial
Management. New Age International.
PDS Group
Http://Www.Pds.Com.Ph/Index.Html%3Fpage_Id
=222.Html
PRESIDENTIAL DECREE No. 1034 - AUTHORIZING
THE ESTABLISHMENT OF AN OFFSHORE
BANKING SYSTEM IN THE PHILIPPINES (1976).
Presidential Decree No. 114: AN Act REGULATING
THE ESTABLISHMENT AND OPERATION OF
PAWNSHOPS January 29, 1973
Presidential Decree Nos. 1141, 1280, 1455, 1460,
1814 AND 1981, AND BATAS PAMBANSA BLG.
874, AND FOR OTHER PURPOSES July 2012
REPUBLIC ACT 7353 - AN ACT PROVIDING FOR THE
CREATION, ORGANIZATION AND OPERATION OF
250
RURAL BANKS, AND FOR OTHER PURPOSES.
(1992).
Republic Act No. 10607: AN ACT STRENGTHENING
THE INSURANCE INDUSTRY, FURTHER
AMENDING PRESIDENTIAL DECREE NO. 612,
OTHERWISE KNOWN AS THE INSURANCE
CODE, AS AMENDED BY Republic Act No. 9679:
AN ACT FURTHER STRENGTHENING THE HOME
DEVELOPMENT MUTUAL FUND, AND FOR
OTHER PURPOSES July 2008
Republic Act No. 7042: AN ACT TO PROMOTE
FOREIGN INVESTMENTS, PRESCRIBE THE
PROCEDURES FOR REGISTERING ENTERPRISES
DOING BUSINESS IN THE PHILIPPINES, AND
FOR OTHER PURPOSES 1991
REPUBLIC ACT NO. 7906 - AN ACT PROVIDING FOR
THE REGULATION OF THE ORGANIZATION AND
OPERATIONS OF THRIFT BANKS, AND FOR
OTHER PURPOSES. (1995).
Republic Act No. 8367: AN ACT PROVIDING FOR THE
REGULATION OF THE ORGANIZATION AND
251
OPERATION OF NON-STOCK SAVINGS AND
LOAN ASSOCIATIONS October 21, 1997
REPUBLIC ACT NO. 8791 - AN ACT PROVIDING FOR
THE REGULATION OF THE ORGANIZATION AND
OPERATIONS OF BANKS, QUASI-BANKS, TRUST
ENTITIES AND FOR OTHER PURPOSES (2000).
Republic Act No. 9474: AN ACT GOVERNING THE
ESTABLISHMENT, OPERATION AND REGULATION
OF LENDING COMPANIES May 22, 2007
Republic Act No. 9520: An Act Amending The
Cooperative Code Of The Philippines To Be
Known As The "Philippine Cooperative Code Of
2008" February 17, 2009
The Top 10 Life Insurance Companies In The
Philippines (2017)
Http://Www.Thewiseguyph.Com/Top-InsuranceCompanies-Philippines-2018/
World Bank Philippines
Https://Www.Worldbank.Org/En/Country/Philippin
es
252