BANKING

• Financial intermediation is a productive activity where an institutional unit incurs liabilities to acquire financial assets by engaging in financial transactions on the market
• The role of financial intermediaries is to channel funds from lenders to borrowers by intermediating between them
• Financial intermediation services sector accounted for approximately 10.1% of GDP in the Philippines in 2021, reflecting an increase from 8.2% in 2018
• A financial system consists of institutions like banks, insurance companies, and stock exchanges that allow the exchange of funds
• Financial systems exist on firm, regional, and global levels
• The financial system enables the flow of funds between savers and borrowers, promoting economic growth and development
• Functions of the financial system:

  • Savings function: provides a conduit for the public's savings
  • Wealth function: financial instruments in money and capital markets store wealth
  • Liquidity function: provides liquidity for savers in need of money
  • Credit function: furnishes credit for consumption and investment spending
  • Payments function: mechanism for making payments for goods and services
  • Risk protection function: offers protection against life, health, property, and income risks
  • Policy function: a channel for governments to stabilize the economy and avoid inflation
• A financial asset is a liquid asset representing a claim of ownership of an entity or contractual rights to future payments
• Financial asset's value may be based on an underlying tangible asset, but market supply and demand influence its value
• Examples of financial assets include stocks, bonds, cash, CDs, and bank deposits
• Financial Market:

  • Refers to a marketplace for creating and trading financial assets like shares, debentures, bonds, derivatives, currencies
  • Plays a crucial role in allocating limited resources in the country's economy
  • Acts as an intermediary between savers and investors by mobilizing funds between them
• Banking institutions were created to provide loans to the public as economies grew
• The History of Banking began around 2000BC in the ancient world with merchants making grain loans to farmers and traders
• The Code of Hammurabi, dating back to about 1772 BC, set standardized procedures for handling loans, interest, and guarantees
• The Bank of Babylon, established in the 18th century BC in ancient Mesopotamia, was the first recorded bank in the world
• In ancient Greece and during the Roman Empire, lenders based in temples accepted deposits and changed money
• Banking history is interlinked with the history and development of money and trade
• The first organized credit institutions were the OBRAS PIAS established in the Philippines during the 16th century Spanish colonial era
• In 1869, the opening of the Suez Canal facilitated trade between the Philippines and Europe, attracting British capital and leading to the establishment of the Chartered Bank of India, Australia, and China (now known as the Standard Chartered Bank) and the Hong Kong and Shanghai Banking Corporation (HSBC)
• In 1916, the Philippine National Bank was established by the Philippine Government to break the foreign banking monopoly and provide a wider variety of banking services
• At the turn of the 20th century, the Americans established the Guaranty Trust Corporation (GTC) and International Banking Corporation (IBC)
• In 1918, the Manila branch of the Yokohama Specie Bank was given a license to do business in the Philippines
• Between 1935 to 1946, more foreign bank branches were established in the Philippines, including the Bank of Taiwan and the Nederlandsche Indische Handelsbanks
• In 1939, the government created the Agricultural and Industrial Bank to absorb the functions of the National Loan and Investment Board
• During WWII, only Filipino-owned and Japanese banks were allowed to operate in the Philippines
• After the liberation, domestic banks that operated during the Japanese occupation were unable to reopen due to their assets consisting of worthless Japanese war notes
• In 1947, a branch of the Bank of America was allowed to establish a branch in Manila
• In 1952, the Rural Bank Act was enacted and two years later, the Agricultural and Industrial Bank merged with the Reconstruction and Rehabilitation Fund to form the Development Bank of the Philippines
• Banking is an industry that handles cash, credit, and other financial transactions for individuals and businesses
• Banking includes activities such as accepting deposits, offering loans, investing, and earning profit
• The banking system includes deposit, loan, and credit processing, as well as customer relationship management activities
• Banks derive profit from the difference between the costs of attracting and servicing deposits and the income received through interest charged to borrowers or earned through securities
• Banks provide services such as financial management, mutual funds, and credit cards
• A financial system consists of institutions like banks, insurance companies, and stock exchanges that allow the exchange of funds
• The financial system facilitates the flow of funds between savers and borrowers, promoting economic growth and development
• Functions of the financial system include:

  • Savings function: provides a conduit for public savings
  • Wealth function: financial instruments in money and capital markets store wealth
  • Liquidity function: provides liquidity for savers in need of money
  • Credit function: furnishes credit for consumption and investment spending
  • Payments function: mechanism for making payments for goods and services
  • Risk protection function: offers protection against life, health, property, and income risks
  • Policy function: channel for governments to stabilize the economy and avoid inflation
• The Philippine financial system is relatively smaller compared to other Asian emerging market economies and is dominated by banks
• Access to finance for individuals in the Philippines is significantly lower than in other Asian emerging market economies, with only a third of adults having formal accounts
• The banking sector in the Philippines is dominated by several large domestic banks, with 46 universal and commercial banks holding over 94% of bank assets
• Banks in the Philippines follow a traditional commercial banking business model, relying on deposits and lending mostly to large nonfinancial corporates (NFCs)