HISTORY OF THE PHILIPPINE BANKING SYSTEM

ANCIENT TIMES
 as early as 2,000 B.C. there were records of loans in the temples of
Babylon.
 Companies of traders conducted banking activities related to buying and
selling of goods
 Greek system of banking was adopted in Egypt and then in Rome
MEDIEVAL TIMES
 Genoa and other Italian cities during the 12th Century
 Commerce expanded in Europe in the 14th Century
 International trade fairs were set up by bankers in Champagne, France.

BEGINNING OF COMMECIAL BANKING

 Bankers in the Mediterranean cities were the direct ancestors of modern
commercial banking
 Banco della Piazza di Rialto, founded in Venice was the first real public bank
 Bank of Deposit in Barcelona (1401)
 Casa di Giorgio in Genoa (1407)
Development of Banking in the Philippines
OBRAS PIAS

 Rich and religious citizens donated money for charitable and pious projects
during the Spanish time and such funds were called Obras Pias which means
pious works and managed by confraternities.
 Became the forerunner of banking institution in the Philippines.

RISE OF BANKS IN THE PHILIPPINES

 1778 - arrival of Governor Jose Basco y Vargas paved the way for the economic
development of the Philippines-to transform the country into a self-sufficient
economy, and to make it financially independent from Mexico.
 1830 - first Filipino bank was founded by Francisco Rodriguez named
RODRIGUEZ BANK followed by Garrido Bank and then Tuazon Bank.
 1851 - first government bank was established by Governor Antonio de
Urbiztondo called Banco Espanol-Filipino de Urbiztondo now the Bank of the
Philippine Islands (BPI).

BANK ORGANIZATION AND MANAGEMENT

 Banks in our country, their organizations are governed by our laws and
they are organized in the form of a corporation
 Banking business involves public trust and interest, it requires more
stable and a strong organization
 Policy of the BSP to encourage the consolidation or merger of small banks
to be more efficient in their operations and be able to serve better the
people.

ESTABLISHMENT OF DOMESTIC BANKS

 Unlike other types of business undertakings, it is not easy to organize-
stringent and rigid provisions of laws that must be strictly complied with
 A bank is imbued with “public trust” and “public interest”
 Banking industry considered indispensable to growth of the national
economy, PD No. 1738
 Organization and management of a domestic banking institution are
governed by the following legislations:
1. General Banking Act
 2. Bangko Sentral Act
3. Revised Securities Act
4. Corporation Code of the Philippines
5. Others (Specific banks)
 Rural Banks Act
 Private Development Banks Act
 Savings and Loan Association Act
 Banks domestically organized must be stock corporations-the SEC is
required to register the articles of incorporation of any bank.
 At least 70% of the voting stock is owned by citizens of the Philippines,
except as may be provided by law.

FOREIGN BANKS
 No foreign bank or banking corporation formed, organized or existing
under any laws other than those of the RP be permitted to transact
business in the Philippines or maintain by itself or assignee any suit of
recovery of any debt, claim, or demand whatsoever until a license from the
SEC is secured, upon order of the Monetary Board is required to order the
issuance of a license to a particular foreign bank to operate in the
Philippines.

o WHAT IS A BANK? - A place where people deposit their money

Attributes of a bank
1. It must be authorized by the monetary board of the BSP.
2. It must engage in the lending of funds.
3. It must regularly conduct such operations, and
4. It must obtain the funds from the public through the receipt of deposits
of any kind.

GENERAL CATEGORIES OF A BANK

1. Commercial banks
2. Thrift banks, composed of (a) Savings and mortgage banks, (b) Stock
savings and loan associations, and (c) Private development banks
3. Rural banks (Regional unit bank)

DEFINITION OF TERMS
o Deposit - is constituted from the moment a person receives a thing belonging
to another, with the obligation of safely keeping it and of return the same.

o Deposit money - all those liabilities of the BSP and of other banks which
are denominated in Philippine currency and are subject to payment in
legal tender upon demand by the presentation of checks.


o Deposit substitutes - an alternative form of obtaining funds from the
public, other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrower’s own account, for the
purpose of relending or purchasing of receivables and other obligations.

o Loan - one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and
return it, in which case the contract is called commodatum.

o Loan - money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum.

 o Public - shall mean twenty or more lenders.

o Quasi-Banking Functions - shall mean borrowing funds for the borrower’s
own account, through the issuance, endorsement or acceptance of debt
instrument of any kind other than deposits from 21 or more lenders at any
one time for purposes of relending or purchasing of receivables and other
obligations

o Financial intermediaries - shall mean persons or entities whose principal
functions include the lending, investing or placement of funds or evidences
of indebtedness 

o Regulation - shall mean the issuances of rules of conduct or the
establishment of modes of standards of operation for uniform application
to all institutions covered, taking into consideration

o Regulation - (continuation) in determining such coverage the distinctive
character of the operations of institutions and the substantive similarities
of specific functions to which such rules, modes, or standards are to be
complied.

o Supervision - shall include not only the issuance of rules, but also the
overseeing to ascertain that regulations are complied with.


COMMERCIAL BANK AND ITS FUNCTIONS
o is any corporation which accepts or creates demand deposits subject to
withdrawal by check.
o may have all powers as may be necessary to carry on the business of
commercial banking, by accepting drafts and issuing letters of credit, by
discounting and negotiating promissory notes, drafts, bills of exchange, and
other evidences of debts, by receiving deposits, by buying and selling foreign
exchange and gold or silver bullion, and by lending money against personal
security or against securities consisting of personal property or mortgages on
improved real estate.
o may acquire readily marketable bonds and other debt securities subject to
such rules as the Monetary Board may promulgate.

o may invest in equities of the following allied undertakings: warehousing
companies.
BANK RESERVES
o Currency deposits that are not lent out to a bank’s clients.
o Small fraction of the total deposits is held internally by the bank in cash
vaults or deposited with the BSP.
o Banks holdings of deposits with the BSP

PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC)

o Federal Deposit Insurance Corporation (FDIC) in the USA for the purpose
of safeguarding the interests of depositors with respect to their deposits
in banking institutions.
o PDIC Board of Directors is composed of 3 members: 1 of whom shall be
the Governor of the BSP and 2 will be appointed by the President of the
Philippines, all are Filipino citizens.
o Maximum amount of insured deposit of any depositor shall be P500,000
o Shall insure the deposits of all banks which are entitled to the benefits of
insurance. Certain terms are defined to avoid its misunderstanding in the
implementation and interpretation:
1. Board of Directors means board of directors of the corporation
2. Bank and banking institution shall be synonymous and interchangeable
and shall include banks and all other companies and partnerships
 performing banking functions in the Philippines.
3. Receiver includes a receiver, liquidating agent, commissioner or other
agency
4. Insured bank means any bank the deposits of which are insured in
accordance with the provisions of Act.
5. Non-insured bank means any bank the deposits of which are not
insured.
6. Deposit means the unpaid balance of money or its equivalent received
by a bank in the usual course of business and for which it has given
or is obliged to give credit to a commercial, checking, savings, time or
thrift account.
7. Insured Deposit means the net amount due to any depositor for
deposits in an insured bank less any part thereof in excess of P500,000.
8. Transfer deposit means a deposit in an insured bank made available to
a depositor by the Corporation as payment of insured deposit.
9. Trust funds means funds held by an insured bank in a fiduciary capacity
and includes funds for trustee, etc.

BANK DEPOSITS
o Current Deposit
 Also called demand deposit, can be withdrawn by the depositor at any
time by checks.

o Savings Deposit
 Means for individuals who wish to deposit small amounts out of
their current income.

o Fixed Deposit
 A deposit repayable after the expiry of specific period, which is to
be determined at the time of opening of the account. It is also known
as time deposit.

o Recurring Deposit
 Depositor is required to deposit a fixed amount of money for a specific
period of time.

o Miscellaneous Deposits
 Banks introduced several deposit schemes to attract deposits from
the different types of people, like home construction deposit
scheme, sickness benefit deposit scheme, children gift plan, old
age pension, mini-deposit scheme, etc.

Deposit
o Means the unpaid balance of money or its equivalent received by a bank
in the usual course of business and for which has given or is obliged to
give credit to commercial, checking, savings, time or thrift accounts.

Insured Deposit
o Means the amount due to any bona fide depositor for any legitimate deposits
in an insured bank net of any obligation of the depositor to the insured bank
as of date of closure, but not to exceed five hundred thousand pesos
(P500,000) the maximum deposit.

BANK’S PRODUCTS AND SERVICES

- Saving Account
- Current Account
- Overdraft Account
- Term Deposit
- Planned Saving
- Deposit Products