As always, history provides the best answers to these questions.

The Bangko Sentral ng Pilipinas

(BSP) has published a very informative book, The General Banking Law Annotated: Book 2,
which details the history of banking in the Philippines.
For the next four weeks, I will share with you this special history as written in the BSP book.
According to The General Banking Law Annotated: Book 2, the first organized credit institutions,
known as Obras Pias, were established in the Philippines during the 16th century Spanish colonial
era.
The capital of Obras Pias came from pious Catholics and their profits were intended to maintain
hospitals, orphanages, and other charitable endeavors.
The Obras Pias served as commercial banks and marine insurance companies, with the bulk of
their funds invested in the galleon trade.
In 1869, the opening of the Suez Canal facilitated trade between the Philippines and Europe. The
Philippines then attracted British capital, and in the years that followed, the Chartered Bank of
India, Australia, and China (now known as the Standard Chartered Bank) and the Hong Kong and
Shanghai Banking Corporation (HSBC), both British-owned banks, opened their branches in
Manila.
In 1883, Madrid-based Banco Peninsular Ultamarino also established a branch in the country.
However the Spanish bank ceased operations after four years.
By the end of the Spanish regime, the banks in existence were: El Banco Espaol Filipino de
Isabel (now the Bank of Philippine Islands or BPI), which was given the sole mandate under a
Spanish Royal Decree of 1854 to issue banknotes called Pesos Fuertes; the Chartered Bank of
India, a branch of the HSBC; the Monte de Piedad; and the Banco Peninsular Ultamarino de
Madrid.
It should be noted that under the Spanish regime, there were no significant Filipino interests,
initiatives, or capital in banking.
During the American colonial period, banks from the United States of America started to establish
local branches that would cater to growing American economic interests and capital inflow into the
country.
The American Bank was first to open a branch in 1901. However, it was placed under receivership
by the Insular Treasurer for making doubtful loans after only four years of operation.
At the turn of the 20th century, the Americans established the Guaranty Trust Corporation (GTC)
and International Banking Corporation (IBC). The existence of GTC was short-lived, while IBC was
eventually taken over by the National City Bank of New York (now known as Citibank, N.A.).

Other foreign banks subsequently made their presence in the Philippines. In 1918, the Manila
branch of the Yokohama Specie Bank was given a license to do business in the Philippines.
From 1919 to 1930, foreign banks Asia Banking Corporation, the Chinese-American Bank of
Commerce of Peking, China, and the National City Bank of New York opened branches in the
Philippines.
During the American colonial era, the Philippine banking system was largely dominated by foreign
bank branches whose capitals were devoted to financing commerce and trade, rather than the
development of the countrys natural resources.
It should also be mentioned that the Bank of the Philippine Islands, which then possessed the
privilege of issuing currency notes, was the only significant bank controlled by local interests.
To break the foreign banking monopoly and remedy the lack of credit facilities, the Philippine
National Bank (PNB) was established in 1916 with the Philippine Government as the majority
stockholder.
The PNB was meant to function as a government enterprise that would widen the variety of
banking services beyond trade finance in exportation and importation, money changing of foreign
currency, and fund transfers, all of which, while useful in the short term, failed to mobilize capital in
the development of natural resources.
Its charter at that time empowered the PNB to issue bank notes and act as a depositary of
government funds.
During the Commonwealth period (1935-1946), more foreign bank branches, such as the Bank of
Taiwan and the Nederlandsche Indische Handelsbanks, were established in the Philippines.
In 1939, the government created the Agricultural and Industrial Bank to absorb the functions of the
National Loan and Investment Board and to harness government resources.
The Philippine Bank of Communications, reported to be the first bank with genuine Filipino private
capital, was also established during this period. However, it was temporarily closed at the outbreak
of the Second World War.
According to the Bangko Sentral ng Pilipinas The General Banking Law Annotated: Book 2 (our
main source of these historical data), only Filipino-owned and Japanese banks were allowed to
operate during World War II.
The Chartered Bank of India, Australia, and China, the HSBC, and the National City Bank of New
York were all treated as enemy properties and placed under liquidation by the Japanese Military
Government.
On the other hand, the Nampo Kaihatsu Kinko (or the Southern Development Bank) opened a
Manila branch in 1942 and acted as the Japanese governments fiscal agent in the Philippines.

After the liberation, all domestic banks that operated during the Japanese occupation were unable
to reopen because the greater part of their assets consisted of worthless Japanese war notes,
bonds, and obligations of the Japanese-sponsored republic, and balances with Japanese banks.
In June 1945, Executive Order No. 48 paved the way for the reopening of some banks.
The first license to reopen was granted to the National City Bank of New York in June, 1945. In the
same year, other foreign banks such as the Chartered Bank of India, Australia, and China, HSBC,
and Nederlandsche Indische Handelsbanks were likewise granted the license to reopen.
In 1947, a branch of the Bank of America, NT & SA (Bank of America) of San Francisco, California,
was allowed to establish a branch in Manila. The following year, the Bank of America absorbed the
assets and liabilities of the local branch of the Nederlandsche Indische Handelsbanks.
In 1949, when the Central Bank of the Philippines started its operations, the banking system
consisted of seven commercial banks, three thrift banks, the sole government specialized bank,
the Agricultural and Industrial Bank, and seven foreign bank branches.
In the next two installments of this series, we will discuss the financial innovations that were
introduced in the Philippines (divided into three main episodes):
* Banking innovations prior to the 1990s.
* Institutional changes in the 1990s: classified into foreign exchange liberalization, financial
liberalization, and the passage of the General Banking Law of 2000.
* After the year 2000: The emergence of non-traditional banking products and services.
According to the Bangko Sentral ng Pilipinas The General Banking Law Annotated: Book 2, the
financial innovations that were introduced in the Philippines can be divided into three episodes:
Banking innovations prior to the 1990s.
Institutional changes in the 1990s: classified into foreign exchange liberalization, financial
liberalization, and the passage of the General Banking Law of 2000.
After the year 2000: the emergence of non-traditional banking products and services.
In 1992, the Bankers Association of the Philippines created the Philippine Dealing System (PDS).
The PDS linked bank participants through an electronic screen-based network that enabled
information sharing and the undertaking of foreign exchange transactions.
The same year, the Rural Banks Act of 1992 repealed Republic Act 720, as amended. The Rural
Banks Act was passed to encourage and assist in the establishment of a rural banking system that
would make credit available and readily accessible in the rural areas on reasonable terms.

On July 3, 1993, pursuant to its constitutional mandate to establish an independent central

monetary authority, Congress passed House Bill No. 7037 and Senate Bill No. 1235, which were
later signed into law as Republic Act 7653, the New Central Bank Act.
The law created the Bangko Sentral ng Pilipinas with the primordial responsibility to administer the
monetary and banking system.
The same law declared that all powers, duties and functions vested by law in the Central Bank of
the Philippines that not inconsistent with the provisions of Republic Act No. 7653, are deemed
transferred to the Bangko Sentral ng Pilipinas.
Another significant legislation, Republic Act 7721, An Act Liberalizing the Entry of Foreign Banks in
the Philippines, was enacted in 1994.
The law liberalized the participation of foreign banks in the local banking system. From only four
foreign banks in the country in 1994, the number soon grew to 18 head offices and subsidiaries.
Several important developments occurred during this decade, like the discontinuation of Bangko
Sentral development lending and the relaxation of rules on bank entry and branching.
Interest payments were also allowed on demand deposits and banks began to innovate in the area
of deposits offered an example would be the offering of savings discounts with life insurance
included.
In 1995, the Thrift Banks Act was enacted to meet the needs for capital, or personal and
investment credit or medium- and long-term for Filipino entrepreneurs. At the same time, the law
placed medium- and long-term credit facilities (at reasonable cost) within the Filipino peoples easy
reach.
On April 12, 2000, Republic Act 8791, the General Banking Law of 2000, was enacted repealing
the 52-year-old banking law.
The passage of the General Banking Law of 2000 strengthened the Bangko Sentrals policy
agenda and institutionalized banking reforms in the Philippines.
http://www.tempo.com.ph/2012/06/25/opinion/speakingout/banking-history-part-iv/
http://www.tempo.com.ph/2012/06/04/opinion/speakingout/speaking-out-history-ofbanking-in-philippines-part-i/
http://www.tempo.com.ph/2012/06/11/opinion/speakingout/banking-history-part-ii/
http://www.tradechakra.com/economy/philippines/banking-sector-in-philippines244.php
The BSP monitors and compiles various indicators on the Philippine banking system.
The Philippine banking system is composed of universal and commercial banks, thrift banks,
rural and cooperative banks.

Universal and commercial banks represent the largest single group, resource-wise, of financial
institutions in the country. They offer the widest variety of banking services among financial
institutions. In addition to the function of an ordinary commercial bank, universal banks are also
authorized to engage in underwriting and other functions of investment houses, and to invest in
equities of non-allied undertakings.

business of commercial banking, such as accepting drafts and issuing letters of credit; discounting
and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting
or creating demand deposits; receiving other types of deposits and deposit substitutes; buying and
selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt
securities; and extending credit, subject to such rules as the Monetary Board may promulgate.
These rules may include the determination of bonds and other debt securities eligible for
investment, the maturities and aggregate amount of such investment.

The thrift banking system is composed of savings and mortgage banks, private development
banks, stock savings and loan associations and microfinance thrift banks. Thrift banks are
engaged in accumulating savings of depositors and investing them. They also provide short-term
working capital and medium- and long-term financing to businesses engaged in agriculture,
services, industry and housing, and diversified financial and allied services, and to their chosen
markets and constituencies, especially small- and medium- enterprises and individuals.

(a) Accept savings and time deposits;

(b) Open current or checking accounts: Provided, That the thrift bank has net assets
of at least Twenty million pesos (P20,000,000) subject to such guidelines as may be
established by the Monetary Board; and shall be allowed to directly clear its
demand deposit operations with the Bangko Sentral and the Philippine Clearing
House Corporation;
(c) Act as correspondent for other financial institutions;
(d) Act as collection agent for government entities, including but not limited to, the
Bureau of Internal Revenue, Social Security System, and the Bureau of Customs;
(e) Act as official depository of national agencies and of municipal, city or provincial
funds in the municipality, city or province where the thrift bank is located, subject to
such guidelines as may be established by the Monetary Board;
(f) Rediscount paper with the Philippine National Bank, the Land Bank of the
Philippines, the Development Bank of the Philippines, and other government-owned
or -controlled corporations. Said institutions shall specify the nature of paper
deemed acceptable for rediscount, as well as rediscounting rate to be charged by
any of these institutions; and
(g) Issue mortgage and chattel mortgage certificates, buy and sell them for its own
account or for the account of others, or accept and receive them in payment or as
amortization of its loan.

Rural and cooperative banks are the more popular type of banks in the rural communities.
Their role is to promote and expand the rural economy in an orderly and effective manner by
providing the people in the rural communities with basic financial services. Rural and cooperative
banks help farmers through the stages of production, from buying seedlings to marketing of their
produce. Rural banks and cooperative banks are differentiated from each other by ownership.
While rural banks are privately owned and managed, cooperative banks are organized/owned by
cooperatives or federation of cooperatives.

Loans or advances extended by rural banks organized and operated under this Act
shall be primarily for the purpose of meeting the normal credit needs of farmers,
fishermen or farm families owning or cultivating land dedicated to agricultural

production as well as the normal credit needs of cooperatives and merchants. In the
granting of loans, the rural bank shall give preference to the application of farmers
and merchants whose cash requirements are small.
(a) Accept savings and time deposits;
(b) Open current or checking accounts, provided the rural bank has net assets of at
least Five Million pesos (P5,000,000) subject to such guidelines as may be
established by the Monetary Board;
(c) Act as correspondent for other financial institutions
(d) Act as a collection agent;
(e) Act as official depository of municipal, city or provincial funds in the municipality,
city or province where it is located, subject to such guidelines as may be established
by the Monetary Board.
(f) Rediscount paper with the Philippine National Bank, the Land Bank of the
Philippines, the Development Bank of the Philippines or any banking institution,
including its branches and agencies. Said institution shall specify the nature of
paper deemed acceptable for rediscount, as well as the rediscount rate to be
charged by any of these institutions;
http://www.bsp.gov.ph/banking/bspsup.asp
The Special Purpose Vehicle (SPV) Act of 2002
Republic Act No. 9182

The Anti-Money Laundering Act of 2001

Republic Act No. 9160

Rules and Regulations Implementing the Anti-Money Laundering Act

General Banking Law of 2000

Republic Act No. 8791

Financing Company Act of 1998

Republic Act No. 8556

The DBP Law

Republic Act No. 8523

Thrift Banks Act of 1995

Republic Act No. 7906

The New Central Bank Act

Republic Act No. 7653

Rural Banks Act of 1992

Republic Act No. 7353

http://www.chanrobles.com/philippinebankinglaws.htm
The banking industry in the Philippines has undergone significant transformation in
recent years. There have been marked improvements in regulations alongside
increased revenues for banks. The Filipino government has enacted multiple laws
regulating the financial industry as well as protecting consumers. However,
significant institutional overlap exists, which is not easy to unravel. Client protection
appears to occupy a very important position in the banking and financial sector, at
least with regards to microfinance. On paper, there is a great framework for
protecting consumers from financial woes and providing them with fair
treatment. The economic slowdown of 1997 persuaded then President Joseph
Estrada to consider further liberalizing trade and introducing a clear set of rules to
attract foreign direct investment. As a result, the General Banking Act and the
Securities Regulation Code were introduced along with other reforms aimed to
reinvigorate the Philippine economy.
Over time, the banking industry of the country has seen significant transformation
guided by reforms carried out by the banking regulator and the government. There
have been great improvements in the banking industry regulations among with
increased revenues for banks. Moreover, the Philippine banking industry has been
undergoing consolidation that will further strengthen its position as new entities will
increase the competition level. Furthermore, banks will continue to be supported by
a benign economic outlook.
Legal Framework
The Philippine government adopted RA 7394 (Consumer Act of the Philippines of
1991) as the legal basis for consumer protection in the country. The law embodies

the state policy on the protection of consumers and establishes standards of

conduct for business and industry in the country.
The Act aims to protect the interest of the consumer, promote his general welfare
and establish standards of conduct for business and industry by adopting the
following measures:

protection against hazards to health and safety;

protection against deceptive, unfair and unconscionable acts and practices;
provision of information and education to facilitate sound choice and the
proper exercise of rights by the consumer;
provision of adequate rights and means of redress; and
involvement of consumer representatives in the formulation of social and
economic policies.

Directly related to microfinance is Title IV of the Act that states that the government
shall "simplify, clarify and modernize the laws regarding credit transactions and
encourage the development of fair and economically sound consumer credit
practices." To enhance consumer awareness on the true cost of financial services,
the law requires the transparency or full disclosure of the true cost of credit
transactions and determination of interest and finance charges. This provision of the
act reiterates the intent of RA 3765 (the Truth in Lending Act) requiring creditors and
providers of loans, as well as credit-granting NGOs, to furnish their borrowers with
information. Prior to the consummation of any transaction, they must provide a
clear written statement disclosing the amount, interest and other finance charges
related to their loan.
Other Laws, Rules and Regulations that govern Financial Practices in the Philippines
are:

RA 8791 (General Banking Law of 2000)

BSP Manual of Regulations for Banks (MORB)
RA 7906 (Thrift Banks Act of 1995)
RA 7353 (Rural Banks Act of 1992)
RA 6938 (Cooperative Code of 1990)
RA 3591; RA 3591 as amended (2004) (PDIC Charter)
PD 612 (Insurance code of 1974)
IC memorandum Circular 9-2006
Batas Pambansa Bilang 68 (Corporation code of 1980)
RA 9474 (An Act Governing the Establishment, Operation and Regulation of
Lending Companies of 2007)
RA 8553 (Financing Company Act of 1998)
Related BSP Circular and SEC Memorandum Circulars

http://www.centerforfinancialinclusion.org/publications-a-resources/client-protectionlibrary/109-summary-of-consumer-protection-in-the-philippines

Best practices are a set of guidelines, ethics or ideas that represent the
most efficient or prudent course of action. Best practices are often set
forth by an authority, such as a governing body or management,
depending on the circumstances. While best practices generally dictate
the recommended course of action, some situations require that such
practices be followed.
http://www.investopedia.com/terms/b/best_practices.asp