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Chapter 11 - Philippine financial system

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Transcript of Chapter 11 - Philippine financial system


Financial Sector Reforms in Recent Years
The Bangko Sentral ng Pilipinas
Status Performance of SEC
The last advisory released by the Securities and Exchange Commission was dated JUNE 14, 2004 saying that the SEC got the highest sincerity among government agencies in fighting corruption.
Government Non-Banking Financial Institution
History Background
Supervision and regulation of Financial Institution
Reorganization of the SEC
Demutualization of the Philippines stock Exchange
Issuance and Enforcement of the Code of Corporate Governance
The Non-bank Institution sector
Component Institution
Supervision and Examination Sector(SES)
Banking Service Sector(BSS)
Resource Management Sector(RMS)
Based on Jim Harvey's speech structures
ter 11
The financial system of the Philippines
-serves as catalyst in the country's growth and development. It is the custodian of the country's liquid reserves and based essentially on trust and confidence of the public.
Financial institutions, particularly banks, perform two major roles:
As participants, particularly in the money creation process
As intermediaries in the Saving-Investment process.
- The Philippine banking history traces its origin to the 16th century with the organization of
Obras Pias

where religious foundation that accumulated large funds from the legacies of wealthy Catholics who made out wills before going out on dangerous expeditions bequeathing their estates to the Catholic church or lay confraternities.
Espanol-Filipino de Isabel II

-The first bank which established in 1851, and since then the banking mechanism has evolved into a complex system to parallel the development and growth of the country's economy.
Non-bank financial Institution
-as they are properly known today are comparatively of recent vintage.These institution operate within the regulatory framework whose parameters are set by the
Bangko Sentral ng Pilipinas
and other regulatory and supervisory authorities.
A number of path breaking reforms were undertaken in recent years to enhance the performance of the financial system:
The establishment in 1993 of the BSP as the central monetary authority of the Philippines under R.A 7653
The BSP replaced the Central Bank established in 1949 which saddled with untenable financial position arising from fiscal responsibilities in the past.
The liberalism of the entry of foreign banks under R.A 7721
The reform conforms to the continuing thrust for globalization and internalization in finance, allowing the economy into the path of sustainable growth. Presently there 14 branches and three subsidiaries of foreign banks performing commercial banking functions in the country.
The deregulation of bank branching that made it easier for bank branching that made it easier for banks to establish their office network nationwide
-thus from a high 17,160 person per bank office in 1990, the density ratio significantly declines to 11,442 by year end of 1998
The gradual reduction in legal reserve requirement from 25% in 1990 to the present 14%
-the reserve requirement will be further reduce to 13%,the impact of such reserve cut has been translated to reduce intermediation cost.
The liberalization of domestic borrowings of foreign firms with the abolition of the Inter Agency Committee on domestic borrowing foreign firms
-this effect eliminated the bureaucratic red tape of securing prior government approval on peso borrowings by foreign companies.
The components of the Financial system are:
Non- banking financial Institution(Non-banking Sector)
Expanded Commercial Bank or Universal Banks

- offers the wide variety of banking services among financial institutions. The banking reforms introduce expanded commercial bank or Unibanks, which, in addition to the powers of commercial banks can engage in:
underwritting activities
equity investment in non-allied undertaking, and
up to 100% equity investments in financial intermediaries other than commercial banks.
Commercial Banks
-constitute the bulk of the banking system. These are institutions that accept deposits, which are subject to withdrawal by checks. It also accept draft and letters of credit , can discount and negotiate and other forms of indebtedness. They can invest in allied undertaking up to a limit, including trading in bonds and securities.
Specialized Government Banks
-it specifically provides an opportunity for veterans of armed forces to work in the field of banking and finance , as depositors, borrowers, as stockholders, and officers.
Development Bank of the Philippines
-was created by the government with the specific function of providing long term credit to finance private development projects.
Land Bank of the Philippines
- was set up in the early 1970s as a financial arm of the land reform program.it was the bank called upon to finance the acquisition by the government of landed estates for division and resale to small land holders and the eventual purchase of the landholding by the tenant-lessee.
Philippine Amanah Bank
-it was especially designed to serve the banking needs of the Muslim areas. It became clear that traditional banking practices are essential for the survival of any banks.
Important specialized Government Institutions:
Thrift Bank
-provided for the establishment, operation and supervision of thrift banks to include savings and mortgage banks, private development banks, and stock savings and loan association.
Savings and Mortgages Banks (SMBs)
-organized primarily to accumulate the savings of depositors and to invest them together
Small Private Banks
-Two major innovations undertaken in the Philippine Financial system are the creation of small rural or town units that did not have the service provided by normal banking institutions.

Rural Banks and cooperatives
-were designed primarily to mobilize rural savings by accepting savings and time deposits and to provide a channel for funds from urban areas and government sectors
Private Development Banks (PDBs)
-modeled to serve like the DBP at the community or provincial level. they allow to accept time and savings deposits and to provide medium and long-term credit to small and medium scale industries.
-is the system that allows the transfer of money between savers (and investors) and borrowers. A financial system can operate on a global, regional or firm specific level.
Financial System
- The principal laws governing banks in the Philippines are the New Central Bank Act, which defines the er of BSP in the

administration of the monetary, banking and credit system; and the General banking Act which regulates the operations of the Banks and the other financial institution.
At the helm of the Philippine Financial System is the
. It provides policy directions in the areas of money, banking and credit. It has supervision over the operations of banks and exercise regulatory powers over the operations of non-bank financial institutions performing quasi-banking functions.
a.) To maintain price stability conducive to a
balanced and sustainable growth in the
b.) To promote and maintain monetary stability
and the convertibility of the peso to other
freely convertible currencies.
The BSP supports activities that serve to strengthen the country's commercial linkages with the world economy by:

a.) Helping to create a stable
financial environment;
b.) Promoting liberal foreign
exchange rules;
c.) Enhancing access to local and
foreign capital to supports
The Philippine Deposits Insurance
Corporation (PDIC)
-is the official insurance corporation of the banking system. It requires insured banks to pay an assessment rate so that their deposits are insured up to Php 500,000 per depositor.
- It may also conduct independent information and reports from insured banks wherever deemed necessary by the PDIC's board of directors
The Securities and Exchange Commission (SEC)
-issues certificate of incorporation to financial corporation votes on and approves amendments thereto, discharges other functions in connection with the licensing of financing companies and investment house, and supervises and regulates their specific areas of operation.
October 26, 1936
-The Securities and Exchange Commission(SEC) was establish by the virtue of the commonwealth Act No. 83 or Securities Act.
November 11, 1936
-The operation begins under Commissioner Ricardo Nepomuceno.Its major function included registration of securities, analysis of every registered securities, evaluation of the financial condition and operations of security issue.
Japanese Occupation
-The agency was abolish and was replaced with the Philippine Executive Commission. It was reactivated in 1947 with the restoration of the Commonwealth Government.
September 29,1975
-Due to the changes in the business environment under
Pres. Fredinand Marcos,
the agency was reorganized as a collegial body with three commissioners and was given quasi-judicial powers
under P.D 902-A.
In 1981. . .
-The Commissioner was expanded ti include
two (2) additional commissioner
two (2) departments
, one for prosecution and enforcement and the other for supervision and monitoring.
December 1, 2000
-the SEC was reorganized as mandated by
R.A. 8799
also known as the
Securities Regulation Code
on -V
To strengthen the corporate and capital market infrastructure of the Philippines , and to maintain a regulatory system, based on international best standards and practices, that promotes the interests of investors in a free, fair and competitive business environment.

We shall be guided in this mission by the values of Integrity, Professionalism, Accountability, Independence and Initiative.
We are morally upright, honest and sincere in our private and public lives.
We consistently implement the law, provide timely and accurate information to investors, and render efficient and competent service to the public.
We abide by prescribe ethical and work standards in government service.
We act without fear or favor, and render sound judgment in the performance of our duties and responsibility.
We are strategic and forward-looking in the fulfillment of our developmental and regulatory functions.
We foresee that, by December 31, 2008, the Self-Regulatory Organizations will be able to function effectively and maintain discipline within their ranks with minimal intervention from the Securities and Exchange Commission.
Powers and Functions of SEC
a.) Have a jurisdiction and supervision over
all corporations, partnerships or associations who are the grantees of primary franchises and or license or permit issued by the Government;
b.) 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:
c.) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications.
d.) Regulate, investigate or supervise the activities of exchanges, clearing agencies amd other SROS:
e.) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROS:
f.) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto:
g.) Prepare, approve, amend or repeal rules, regulations and orders issue opinions and provided guidance on and supervise compliance with such rules, regulations and others:
h. 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 institutions, corporation, firm, association or person in the implementation of its powers and functions under this code
i. Issue cease and desist orders to prevent fraud or injury to the investing public;
j. 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;
k. Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision ;
l. Issue subpoena deuces tecum and summon witnesses to appear in any procengs of the commission and in appropriate case, order the examination, search and seizure of all documents, papers, files and records, tax returns, and book of accounts of any entity or person under investigations as may be necessary for the proper dispositions of the cases before it, subject to the provisions of existing laws.
m. Suspend, or evoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by laws; and
n. 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.
The released results from the Social Weather Station (SWS) 2003/04 Transparent and Accountable Governance (TAG) Enterprises first among 24 government agency in both gross and net sincerity rating in fighting corruption.
The Securities and Exchange Commission consistently increases their positive results since year 2000 when the Securities Regulation Code had been passed. Here are the cornerstones of the reforms :
SEC Computerization Program
Non-Banking Financial Institution
The Philippine banking system has grown
in great diversity with banking system being specialized
The GSIS and SSS generate forced savings, which are intended to fund the retirement benefits of its members.
-Component institution are not banks, but currently are subject to regulation by the BSP.
Sub-divided into two groups:
those that engage in the lending of funds obtained from
the public by issuance of their own debts instruments.
those that engage in the lending of funds from source other than the public.
Investment house
-are stock corporations engage in the underwriting of securities of other corporation on a guaranteed basis.
Financing Companies
-are corporation or general partnership extending credit facilities to consumers and to industrial, commercial or agricultural enterprises and leasing movable properties.
Investment Companies
-are issuers of securities primarily engaged in the business of investing or trading in securities.
Types of Investment Companies
1.) the open-end company also known as the
Mutual funds,
which offers for sale or has outstanding redeemable
securities of which it is an investment.
2.) the close company, which is an investment
company whose shares issued are not redeemable.
Securities Dealer and Broker
-a securities dealer buys and sells shares of stock of another , or acquires securities for profit.
Venture Capital Corporations
-develop, promote and assist small and medium scales enterprises through debt to equity financing.
-these may be organized as sole proprietorship by Filipinos, or a partnership with 70% of the capital subscribe by Filipinos or as a corporation with 70%of the equity owned by Filipinos.
Lending Investors
-are those who make a practice of lending money for themselves or others.
Government Non-Bank Institution
-these are investments or financing companies created under special charters.
Mutual Building and loan Associations
-these are corporations whose capital stock m be subscribe by the stockholders in regular equal installment with the purpose of accumulating the stockholders' savings and repaying them with their accumulated savings and profits upon surrender of their shares in order to encourage industry, savings and home building.
Stock Savings and Loan Associations (SSLAs)
-are associations operating under the savings and loan association Act and are licensed and supervised by the BSP.
The power and functions of BSP are exercised by the monetary Board and chaired by the Governor.
-This sector has supervision and conducts periodic an special examinations of banking institutions and quasi-banks.
-This sector is responsible for tracking/monitoring foreign exchange transaction and external debt, currency issue and retirement, loans and credit, government securities and branch operations of the BSP.
-This sector is responsible over accounting operation, information technology systems, human resources, property management, securities and other support services of the BSP.
Actions the BSP may take to protect depositors and bank creditors in cases where banks get into financial difficulties
a. Appointment of a conservator in a bank
b. Placement of a bank under receivership whenever, upon report of the head of the supervising or examining department.
c.Placement under liquidation upon determination of a receiver that the institution cannot be rehabilitated or permitted to resume business with the depositors, creditors and general public.
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