Republic of the Philippines

MAILA ROSARIO COLLEGE

Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

COLLEGE OF BUSINESS ADMINISTRATION

MAJOR IN FINANCIAL MANAGEMENT
1st SEMESTER, S.Y. 2021 – 2022
FINALS COVERAGE

Module in
MONETARY POLICY AND CENTRAL BANKING

MODULE NO.: 07

NAME OF STUDENT: ___________________________________________________

YEAR / SECTION: ______________________________________________________
DATE RECEIVED: ______________________________________________________

INSTRUCTOR: ELEINE T. ALVAREZ

NOTE: Please be cautious in following the given instructions in each activity. Correspondingly, observe
punctuality in accomplishing this module. God bless and happy learning! – INSTRUCTOR
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

I. OVERVIEW
This module focus is to develop the learner’s skills in understanding, analyzing,
evaluating and applying the concepts, underlying principles, and processes about The
Philippine Financial System.

II. LEARNING OBJECTIVES

In this learning module, the learner is expected to:
a. Describe the history of Philippine banking.
b. Discuss the financial system banks and non-bank financial institutions.
c. List the number of financial institutions and the types of banks.
d. Explain the role of Philippine Deposits Insurance Corporation and the Securities
and Exchange Commission.
e. Differentiate the non-banking financial institutions.
f. Discuss the supervision and regulation of financial institutions.
g. Illustrate the actions of BSP in protecting depositors and bank creditors in cases
where banks get into financial difficulties.

III. GUIDE QUESTIONS

1. How does Philippine banking start?
2. What are the roles of PDIC and SEC?
3. How does BSP related to the financial system of the Philippines?

Page 2 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

IV. LESSON PROPER

Philippines Financial System

History of Financial System

History of Philippine Financial System

Financial System is like the heart of the human beings, if it stops working then
the person is dead in the same way that if the financial system stops working, then the
economy would collapse. It is inherent in every society the law of supply and demand.
There will always be those who have surplus resources and others will have deficit.
Financial System is crucial to the allocation of these resources.
In the Philippines settings, Financial System is composed of banking institutions
and nonbank financial intermediaries, including commercial banks, specialized
government banks, thrift banks and rural banks. It is also composed of offshore banking
units, building and loan associations, investment and brokerage houses and finance
companies. The Bangko Sentral ng Pilipinas and the Securities and Exchange
Commission maintained the regulatory and supervisory control.
The first credit institution in the Philippines, "The ObrasPias" was started by
Father Juan Fernandez de Leon in 1754 and ended in 1820. It was in 1851 that the first
Philippine Bank was established, the "Banco Espanol-Filipino de Isabela II". Banco
Español-Filipino de Isabela II is now known as Bank of the Philippine Islands. It is the
oldest standing bank in the Philippines and in the whole of Southeast Asia. It was
established on August 1, 1851 and named after the mother of then Spanish King
Alfonso XII. Her mother's name was Isabella. The bank only came into being after 23
years after Spanish Monarch Ferdinand VII decreed that a public bank was to be
established in the Spanish colonized country of the Philippines. The bank began its
operations in 1852 and was given the honor of being the first to issue paper money. In
1906 "First Agricultural Bank of the Philippines" was established and in 1916 all of its
assets and liabilities were transferred to the newly organized Philippine National Bank.

• The Spanish Era

The Obra Pias established in 1594, represented the first organized financial institution in
the Philippines. Capitalization came from legacies of wealthy individuals from the

Page 3 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

Church. Most of the funds went to traders involved in the galleon trade with Acapulco,
Mexico. August 2, 1882, the first savings bank in the country was founded by Fr. Felix
Huertas and named “Monte de Piedad y Caja de Ahorros de Manila”.

• The American Period

1901 – American Bank was opened which operated for 4 years
1902 – Wai Hung Bank and the Abrue Newberry and Reyes Bank were opened
1904 to 1906 – the first provincial bank was opened, the Bank of Pangasinan.The Bank
of Zamboanga which was operated until 1908
1906 – S: Misuka Bank was opened to serve the local Japanese community. -
the Postal Savings Bank was created as a division of the Bureau of Post
to promote the habit of thrift among the people and to bring banking to
the rural areas.
1916 – through Act No. 2612, the Philippine National Bank was established and
was organized to grant and extend long-term agriculture and industry
credit.
1929 – The Bureau of Banking was created assuming the power and
supervision over this institution from the Bureau of Treasury.

• The Japanese Occupation

January 2, 1942 – the entry of Japanese Imperial forces in Manila
1942 – The Southern Development Bank was opened a branch in Manila
and acted as fiscal agent of Japanese Government in the
Philippines

• Post- Marcos Era

Mrs. Corazon Aquino assumed presidency in 1986. She found it necessary to
offset P130 B in bad loans granted by the government’s 2 major financial
institutions, the PNB and DBP (Development Bank of the Philippines).

Towards a Resilient and Inclusive Financial Sector

The financial sector intermediates claims between savings and investors.
The credibility and stability of financial institutions and the relative attractiveness of
various financial instruments to borrowers and lenders alike determine how much
saving will mobilized, how much it stays in the country to be invested, and how this is to
be allocated among the various firms and industries. Together with the state of
confidence and long-term expectation, therefore, the stability and performance of
financial institutions such as banks, equity and bonds markets, insurance companies,
and other financial entities have an indirect but vital bearing on investment and the
growth of output and employment in the country.

Assessment
The Philippine financial system manifested its strength over the past decade,
including the period of recent global financial crisis. After significant dislocations in prior
crises in the 1980s and 1990s as well as the 1997 Asian Financial Crisis, the system
saw a steady improvement in the balance sheet of the banking industry, the issuance
and listing of corporate bonds, and the underwriting of insurance contracts. Moving
forward, however, the system will need to address concerns about the sustainability of
its performance if it is to contribute significantly to development.
Parallel to these, policymakers pursued broad-based financial sector reforms
centered on restructuring the banking sector, institutionalizing corporate governance

Page 4 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

reforms, improving risk management and strengthening the supervisory oversight of

financial regulators1 in the early 2000s. Together with improved macroeconomic
conditions, the steady inflow of remittances from OFWs, a minimal investment exposure
to foreign structured products and a low dependence on exports, these reforms allowed
the financial system to avoid the worst difficulties encountered by other economies
during the 2007- 2008 financial crisis.
The financial system’s performance has been positively reviewed by third
parties. Stress tests conducted on banks also confirm the strength of the banking
system’s capitalization even with extreme test parameters. For inclusive finance
advocacy, local supervisory initiatives have also been repeatedly acknowledged by
international institutions. These external validations of the improvements in the financial
sector culminated in the sovereign ratings or outlook upgrades from some the major
ratings firms.

CURRENT STRUCTURE OF THE FINANCIAL SYSTEM

The Philippine financial system is primarily bank-based rather than capital
market-based. The banking sector, whose total assets accounted for more than 80
percent of the total resources of the financial system4 and of GDP in 2010, plays the
primary role in financial intermediation and is the main source of credit in the economy.
Across banking groups, universal and commercial banks continued to hold the
lion’s share of key balance sheet accounts of the banking system on account of their
market maturity, branch network and capitalization. The comparative market shares of
key banking groups are summarized in Table 6.1.
Meanwhile, the market share of nonbank financial institutions remains
relatively small, accounting for about 18 percent of total assets of the financial system
and 17 percent of economic output in 2010. The Insurance Commission (IC), for
instance, reports that only 13.9 percent of the Philippine population has private life
insurance coverage. In 2008, the private insurer’s penetration rate or the proportion of
the premiums to the country’s GDP was only 1.1 percent. Among the reasons cited for
the low insurance coverage is the lack of priority being placed on insurance products by
the citizenry and the low financial literacy level among low income households including
the informal sector.

Page 5 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

The insurance industry’s total assets reached P528.2 billion as of end- December
2009 with 122 market players. Life insurers captured the bulk of the insurance market at
79% while nonlife insurers at 19% and professional reinsurers at 2 percent.
Meanwhile, the number of companies listed in the Philippine Stock Exchange
(PSE) grew to 259 companies in 2011 from just 12 companies in 2003. Despite the rise
in the number of listed companies, market capitalization as a percentage of economic
output remained small (except Indonesia) compared to other ASEAN-5 economies. In
2009, market capitalization dropped to 45.8 percent of GDP from 54 percent in 2002. This
reflects that the market remains illiquid and the free float of listed companies in the PSE
still limited.
Mutual funds, with market size likewise smallest in Asia,5 are managed by broker-
dealers and investment companies where largest of them in terms of asset size are either
subsidiaries or affiliates of banks.

STRUCTURE OF THE PHILIPPINE FINANCIAL SYSTEM

I. Bangko Sentral ng Pilipinas
II. Banking Institutions
A. Private Banking Institutions
1. Expanded Commercial Banks/Universal Banks (EKB/UB)
2. Commercial Banks (KB)
oThrift Banks (TB)
oSavings and Mortgage Banks (SMB)
oPrivate Development Banks (PDB)
3. Stock Savings and Loan Associations (SSLA)
4. Rural Banks (RB)
5. Cooperative Banks
B. Government Banking Institutions
1. Development Bank of the Philippines (DBP)
2. Land Bank of the Philippines (LBP)
3. Philippine Al-Amanah Islamic Investment Bank
III. Non-Bank Financial Institutions
A. Private Non-Bank Financial Institutions
1. Investment houses
2. Investment banks
Page 6 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

3. Financing companies
4. Securities dealers/brokers
5. Savings and loan associations
6. Mutual funds
7. Pawnshops
8. Lending investors
9. Pension funds
10. Insurance companies
11. Credit union
B. Government Non-Bank Financial Institutions
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Pag-ibig

BRIEF DESCRIPTION OF THE FINANCIAL INSTITUTIONS

I. Bangko Sentral ng Pilipinas

Central bank of the Republic of the Philippines. It was established on 3 July 1993
pursuant to the provisions of the1987 Philippines Constitution and the New Central
Bank Act of 1993.The BSP took over from the Central Bank of Philippines, which
was established on 3 January 1949, as the country's central monetary authority.
The BSP enjoys fiscal and administrative autonomy from the National Government
in the pursuit of its mandated responsibilities.

II. Banking Institutions

A. Private Banking Institutions
1. Universal Bank (UB) or Expanded Commercial Bank (EKB)
is any commercial bank, which performs the investment house function in addition
to its commercial banking authority. It may invest in the equities of allied and non-
allied enterprises. Allied enterprises may either be financial or non-financial.

Page 7 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

2. Commercial Bank or Domestic Bank (KB)

is any commercial bank that is confined only to commercial bank functions such
as accepting drafts and issuing letters of credit, discounting and negotiating
promissory notes, drafts and bills of exchange, and other evidences of debts,
accepting or creating demand deposits, receiving other types of deposits and
deposit substitutes, buying and selling foreign exchange, and gold or silver
bullions, acquiring marketable bonds and other debt securities, and extending
credit subject to such rules that the Monetary Board may promulgate.

3. Thrift Banks (TB)

shall include savings and mortgage banks, stock savings and loan associations
and private development banks. Their function is to accumulate the savings of
depositors and invest them together with their capital, loans secured by bonds,
mortgages in real estate and insured improvements thereon, chattel mortgages,
bonds and other forms of security or loans for personal or household finance,
whether, secured or unsecured, or in financing for home building and home
development; in readily marketable and debt securities; in commercial papers and
accounts receivables, drafts, bills of exchange, acceptances or notes arising out
commercial transactions; and in such other investments and loans which the
Monetary Board may determine as necessary in the furtherance of national
economic objectives.

a. Stock Savings and Mortgage Bank (SSMB)

is any corporation organized for the purpose of accumulating the savings of
depositors and investing them, together with its capital, in readily
marketable bonds and debt securities; check, bills of exchange,
acceptances or notes arising out of commercial transactions or in loans
secured by bonds, mortgages or real estate and insured improvements
thereon and other forms of security or in loans for personal or household
finances whether secured or unsecured, and financing for home building
and home development.
b. Private Development Bank (PDB)
is a bank that exercise all the powers and assumes all the obligations of the
savings and mortgage bank as provided in the General Banking Act except
as otherwise stated. The private development bank helps construct, expand
and rehabilitate agricultural and industrial sectors. The Development Bank
of the Philippines is the government counterpart of the private development
banks and helps, the private development banks augment their
capitalization as provided under R.A. 4093 as amended.

c. Stock Savings and Loan Association (SLA)

is any corporation engaged in the business of accumulating the savings of
its members or stockholders and using such accumulated funds, together
with its capital for loans and investment in securities of productive
enterprises, or in securities of the government and its instrumentalities,
provided that they are primarily engaged in servicing the needs of
households by providing personal finance and long term financing for home
building and development.

4. Rural Bank (RB)

is any bank authorized by the Central Bank to accept deposits and make credit

Page 8 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

available to farmers, businessmen and cottage industries in the rural areas.

Loans may be granted by the owner of private property can show five (5) years or
more of peaceful continuous and uninterrupted possession of the land in the
concept of ownership. This will include portions of friar land estates or other lands
administered by the Bureau of Lands that are covered by sale contracts and
purchases and have paid at least five (5) years installment thereon, without the
necessity of prior approval and consent of the Director of Lands or portions of other
estates under the administration of the Department of Agrarian Reform.

5. Cooperative Banks
are banks established to assist the various cooperatives by lending those funds at
reasonable interest rates.

B. Government Banks or Specialized Government Banking Institutions

1. Development Bank of the Philippines (DBP)
provides loans for developmental purposes, given loans to the agricultural sector,
commercial sector and the industrial sector.

2. Land Bank of the Philippines (LBP)

is a government bank, which provides financial support in the implementation of
the Agrarian Reform Program (CARP) of the government.

3. Al-Amanah Islamic Investment Bank

Republic Act No. 6048, provides for the charter of the Al-Amanah Islamic
Investment Bank. This Act authorizes the bank to promote and accelerate the
socio-economic development of the Autonomous Region of Muslim Mindanao by
performing banking, financing and investment operations, and to establish and
participate in agriculture, commercial and industrial ventures based on the Islamic
concept of banking.

III. Non-Bank Financial Institutions

A. Private Non-Bank Financial Institutions
1. Investment House
is any enterprise, which engages in underwriting securities of other corporations.
It also generates income from sale of investments in securities.
2. Investment Banks
such as Goldman Sachs and Morgan Stanley, differ from commercial banks in that
they do not take in deposits and until very recently rarely lent directly to
households. They provide advice to firms issuing stocks and bonds or considering
mergers with others firms. They also engage in underwriting in which they
guarantee a price to a firm issuing stocks or bonds and then make profit by selling
the stocks or bonds at a higher price.
3. Financing Company
is any business enterprise where the primary purpose is to extend credit facilities
to consumers and to industrial, commercial or agricultural entities either by
discounting or factoring commercial papers or accounts, or by buying installment
contracts, leases, chattel mortgages, or other evidences of indebtedness or by
leasing motor vehicles, heavy equipment and industrial machineries and business
and office equipment, appliance and other movable properties.
4. Securities Dealer
is any person or entity engaged in the business of buying and selling securities for

Page 9 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

his own or its client’s account thereby making a profit from the difference between
the purchase prices and selling price of securities.
5. Savings and Loan Association (S&Ls),
which have traditionally served individual savers and residential and commercial
mortgage borrowers, accumulate the funds of many small savers and then lend
this money to home buyers and other types of borrowers. Because the savers
obtain a degree of liquidity that would be absent if they bought the mortgages or
other securities directly, perhaps the most significant economic function of the
S&Ls is to “create liquidity”. Also, the S&Ls have more expertise in analyzing credit,
setting up loans, and making collections than individual savers, so they reduce the
transaction costs and increase the availability of real estate loans.
6. Mutual Funds
are corporations which accept money from savers and then use these funds to buy
stocks, long-term bonds, or short-term debt instruments issued by business or
government units. These organizations pool funds and thus reduce risks by
diversification. They also achieve economies of scale, which lower the costs of
analyzing securities, managing portfolio, and buying and selling securities.
Different funds are designed to meet the objectives of different types of savers.
Hence, there are bond funds for those who desire safety, stock funds for savers
who are willing to accept significant risks in the hope of higher returns, and still
other funds that are used as interest-bearing checking accounts (the money
market funds). There are literally hundreds of different mutual funds with dozens
of different goals and purposes.
7. Pawnshops
refer to persons or entities engaged in the business of lending money with personal
property, jewelry and other durable goods as collateral for the loans given.
8. Lending Investor
is any person or entity engaged in the business of effecting securities transactions,
giving loans and earn interest for them.
9. Pension Funds
are retirement plan funded by corporations or government agencies for their
workers and administered primarily by the trust departments of commercial banks
or by life insurance companies. Pension funds invest primarily in bonds, stocks,
mortgages and real estate.
10. Insurance Companies
take savings in the form of annual premiums then invest these funds in stocks,
bonds, real estate and mortgages and finally make payments to the beneficiaries
of the insured parties. In recent years, life insurance companies have also offered
a variety of tax-deferred savings plan designed to provide benefits to the
participants when they retire.
11. Credit Unions
are cooperative associations whose members have a common bond, such as
being employees of the same firm. Members’ savings are loaned only to other
members, generally for auto purchases, home improvement loans, and even home
mortgages. Credit unions often are the cheapest source of funds available to
individual borrowers.

B. Government Non-Bank Financial Institutions

1. Government Service Insurance System (GSIS)
Provides retirement benefits, housing loans, personal loans, emergency and
calamity loans to government employees.

Page 10 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

2. Social Security System (SSS)

Provides retirement benefits, funeral benefits, housing loans, personal loans and
calamity loans to employees who are working in private companies and offers.
3. Home Development Mutual Fund (HDMF) - Pag-ibig
Provides housing loans to both government and private employees

ELEMENTS OF THE FINANCIAL SYSTEM

1. Financial claims
– These comprises the money and the rights to receive money under specific
circumstances. There are twobroad categories of claims: debts and equities.
Equity conveys ownership rights while debt does not.

2. Financial institutions
– These are private or government organizations whose assets consists primarily
of claims or in comes primarily derived from dealing in and/or performing services
in connection with claims. Such institutions act as middlemen between suppliers
and users of money. Some of these are commercial banks, savings and loans
associations, and finance companies. Financial institutions provide financial
information and advice, manage portfolios of financial assets on behalf of
economic units, buy and sell claims on instructions from client, and assist in finding
sources for those economic units seeking loans.

3. Financial markets
– These are institutions which expedite transactions in financial claims. It serves
as a means of bringing the forces of demand and supply of financial claims.

4. Financial regulators
– The Monetary Board is the policy-making body of Bangko Sentral ng Pilipinas.
Laws on money, credit, and banking are legislated by the Congress and through
presidential decrees issued by the President.

FUNCTIONS OF FINANCIAL INSTITUTIONS

The general function of financial institutions is to facilitate the transfer of funds from savers
to users. In transferring such savings, there is a need for assistance due to large volume
of savings. Also, certain barriers are created by individuals in the transfer of funds: risk,
inconvenience, and cost of transfer and desire to avoid illiquidity.

Financial institutions perform certain specific functions:

a. Investigation and credit analysis
• proper evaluation of loan applications
• ensures the efficient use of credit.
• protects the savings of individual
• minimize the risk of nonpayment of loans.
b. Matching the supply and demand for funds
• financial institutions are money broker
• they bring the lenders and borrowers together
c. Provision for liquidity
Many savers are reluctant to transfer their money to borrowers. They may need
cash before their debtors could pay them.

Page 11 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

THE EVOLVING PHILIPPINE FINANCIAL SYSTEM

The Philippine financial system continues to experience growth against a backdrop of
strengthening domestic economy. Political reforms, i.e., tax reforms and greater
infrastructure spending, are projected to drive the domestic growth in 2018 as these lead
to higher spending by both the government and households. The domestic economy is
also seen to gain from the momentum of global economic recovery, based on the upward
revisions of growth projections by third party analyst. However, despite the positive
outlook for the Philippines, there are internal and external developments that pose
downside risks to the domestic financial system.

To counteract the downside risks and smooth functioning of the Philippine financial
system more stringent initiatives are being pursued by the four regulatory agencies,
namely:

1. Bangko Sentral ng Pilipinas (BSP)

2. Securities and Exchange Commission (SEC)
3. Insurance Commission (IC)
4. Philippine Deposit Insurance Commission (PDIC)

THE BANGKO SENTRAL NG PILIPINAS

The BSP is responsible for maintaining price stability conducive to a balanced and
sustainable growth of the economy. The BSP keeps prices of goods and services steady
and at reasonable levels so the economy can run unhampered.
The BSP was created under Section 2 of RA7653, better known as “The New
Central Bank Act”. It traces the roots and fundamental structure from its predecessor, the
Central Bank of the Philippines. The Bank began formal operations on July 3, 1993.
The BSP performs several important functions that have a significant effect on the
value of your money.

1. The Money Manager.

The BSP manages the amount of money available to the public to keep prices from
increasing more than usual.
2. The Supplier of Money.
Only the BSP can legally issue money in paper notes and coins and in amounts
consistent with the country’s economic program. The BSP also prints the paper

Page 12 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

money and mints the coins.

3. The Banker’s Bank.
The BSP grants loans to and accepts deposits only from banks.
4. The Supervisor of all Banks.
In the exercise of its responsibility to supervise banks, the BSP regularly monitors
and examines the operation operations of banks as well as their compliance with
banking rules and regulations.
5. The Main Bank of the Government.
The BSP is the official depository of the government. The BSP Monetary Board is
the policy-making body of the Bank. It is headed by the BSP Governor who is
concurrently the Chairman of the Board, with five full-time members from the
private sector and one member from the Cabinet.

SECURITIES AND EXCHANGE COMMISSION

SEC (Securities and Exchange Commission)

is the chief regulating body in the securities
industry . It protects investors by preventing
and prosecuting fraud, insider trading, and
other deceptive and fraudulent practices in
the stock market

INSURANCE COMMISSION

Mandate
To regulate and supervise the insurance, pre-need, and HMO
industries in accordance with the provisions of the Insurance
Code, as amended, Pre-Need Code of the Philippines, and
Executive Order No. 192 (s. 2015)

Objectives
• To promote growth and financial stability of insurance, pre-need, and HMO
companies
• To professionalize insurance, pre-need, and HMO services, and develop
insurance, pre-need, and HMO consciousness among the general populace
• To establish a sound national insurance market
• To safeguard the rights and interest of the insuring public, pre-need and HMO
customers

Functions
1. Promulgation and implementation of policies, rules and regulations governing the
operations of entities engaged in insurance, pre-need, and HMO activities as well
as benevolent features
2. Licensing of insurance, reinsurance companies, its intermediaries, mutual benefit
associations, trusts for charitable uses, pre-need companies, pre-need
intermediaries, and HMO companies

Page 13 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

3. Conducting insurance agent’s examinations, as well as processing of reinsurance

treaties and request for investments of insurance companies
4. Examination/verification of the financial condition and methods of doing business
of entities engaged in insurance business, pre-need, mutual benefit associations,
trusts for charitable uses, and HMO companies
5. Evaluation and preparation of statistical reports, studies, researches, annual
reports, and position papers relative to insurance, pre-need matters, and HMO
matters
6. Review of premium rates imposed by life and non-life companies, mutual benefit
associations; statistical reports of adjusters to determine compliance with
established standards.
7. Adjudication of claims and complaints involving loss, damage or liability incurred
by an insurer under any kind of policy or contract of insurance or suretyship;
8. Review and approval of all life and non-life policies, pre-need, and HMO plans
before sale to prospective clients.

PHILIPPINE DEPOSIT INSURANCE CORPORATION

PDIC is a government instrumentality

created in 1963 by virtue of Republic Act
3591 to insure the deposits of all banks.
PDIC exists to protect depositors by
providing deposit insurance coverage
for the depositing public and help
promote financial stability.

Consistent with its public policy objectives, the PDIC has the following mandates:

I. Deposit Insurance.
The PDIC provides a maximum deposit insurance coverage of PHP500,000 per
depositor per bank. To pay insured deposits, the PDIC builds up the Deposit
Insurance Fund primarily through assessments of member-banks at an annual flat
rate of 1/5 of 1% of their total deposit liabilities.

II. Examination and Resolution.

The PDIC works closely with the Bangko Sentral ng Pilipinas (BSP) to help
maintain stability in the banking system. PDIC is authorized to issue regulations to
implement its Charter, conduct bank examinations and investigations to assess
financial safety and soundness of banks and their adherence to banking and
deposit insurance rules and regulations, and extend financial assistance to eligible
distressed banks.

III. Receivership and Liquidation.

The PDIC is the statutory receiver and liquidator of closed banks. Upon order of
the Monetary Board of the BSP, PDIC takes over closed banks; administers their
assets, records and affairs; and manages and preserves these assets for the
benefit of the closed banks' creditors. Under RA 10846 or the amended PDIC
Charter, a closed bank transitions seamlessly from closure to liquidation, enabling
PDIC to dispose and distribute assets and settle claims of creditors in accordance
with the preference and concurrence of credits as provided by the Civil Code of
the Philippines

Page 14 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

REGULATORY LANDSCAPE

A. Alignment with global standards

1. The BSP has released Circular No. 975 in October 2017 to streamline the
requirements on the issuance of bonds and commercial papers by banks and quasi-
banks and Circular Nos. 984 and 985 in December 2017 in furtherance of liberalizing
the foreign exchange (FX) regulatory framework. It has also set the target to 01
September 2018 for banks to comply with the revised rules on liquidity risk
management anchored on the Principles for Sound Liquidity Risk Management and
Supervision under the Basel III reform agenda.
2. A key priority of the Insurance Commission (IC) is the adoption of international
reporting practices. The IC is preparing for the implementation of the Philippine
Financial Reporting Standards by the Financial Reporting Standards Council that will
be applied to insurance companies. For subsidiaries and. branches of Global
Systemically Important Insurers operating in the Philippines, the IC requires keeping
reserves to pay policyholders in the event of insolvency and has set the guidelines
for the orderly acquisition, merger, consolidation, sale of insurance portfolio, and exit
from the domestic insurance business should another financial crisis global in scale
triggers a sell-off.
3. The SEC approved amendments to the Securities Regulation Code (SRC) and the
Corporation Code as well as supporting the bills on regulating Collective Investment
Schemes to enhance local regulations and conform to international best practices.
Considering the rising popularity of crypto currency, the SEC is also studying the
ideal regulatory treatment of virtual currencies (VCs) from the perspective of investor
protection. For internet-based scams, the SEC coordinates with the Philippine
National Police and the National Bureau of Investigation which possess the
resources and expertise to assist in the investigation of cybercrimes committed by
online organizations.
4. For its part, the PDIC has entered into a cross-border partnership by way of a
Memorandum of Understanding (MOU) with eight deposit insurance agencies from
Asia, the UK and the US. The MOU fosters enhanced cooperation through exchange
of information, prompt response to technical inquiries, effective support for exchange
of experts and staff, conduct of bilateral meetings, and other collaborations to the
extent permitted by each country's laws, rules and regulations

B. Deepening capital markets

Various financial products have been introduced to the different segments of the
domestic market aimed at providing alternative options for raising funds or for investing
money. These include:
(1) dollar-denominated securities,
(2) exchange-traded funds,
(3) green bonds (upcoming),
(4) Personal Equity and Retirement Account,
(5) PHP government fund forward,
(6) public-private partnership shares, and
(7) real estate investment trust.

Furthermore, the SEC has initiated reforms on minimum public ownership,

repurchase agreements and shelf registration that underscore the need for improved
liquidity in the market and the importance of price discovery. The SEC is also finalizing
its rules governing the crowd funding market.

Page 15 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

Meanwhile, the BSP, Bureau of the Treasury and SEC, with the support of the
DOF, rolled out in August 2017 the roadmap to accelerate the development of the
Philippine debt market. The three agencies, which comprise the Capital Market Working
Group, agreed to prioritize deepening of the local bond market, creating reliable financial
benchmarks and valuation of financial instruments, and establishing an integrated
financial market infrastructure (FMI).

C. Strengthening surveillance
1. The BSP has recently completed the requirements of becoming a BIS-reporting
country. This will allow access to detailed information on cross-border exposures of
other countries to the Philippines. The BSP through the FSCC has also initiated
collaborations with the Housing and Land Use Regulatory Board to develop a maiden
reportorial template targeted to real estate companies.
2. To further its conduct of surveillance and understanding of the underlying
developments in the insurance industry, the IC is in the process of building a
database from the quarterly reports required from insurance companies and
developing analytical tools for data mining purposes.
3. Currently, the SEC is proposing the creation of a unit for handling the rules,
regulations, policies, and guidelines concerning anti-money laundering (AML) and
counter terrorist financing (CTF) for covered entities. With the implementation of the
2015 Revised Implementing Rules and Regulations of the SRC, the SEC intends to
amend and update its guidelines on the preparation of the AML manual of covered
entities. Additionally, the SEC aims to prepare an audit plan and program regarding
the conduct of regular audits on covered entities, focusing on the compliance with
AML/CTF requirements.

CURRENT RISKS IN THE PHILIPPINE FINANCIAL SYSTEM

A. Repricing, Refinancing, and Repayment Risks (3Rs)

1. The normalization of US monetary policy creates the incentive for global capital
flows to be directed towards the US, affecting asset and currency prices along the
way
2. A slowdown in global growth and deceleration of international trade will undermine
the growth of many economies
3. Higher debt levels across countries will continue to leave economies vulnerable to
changes in the growth outlook and the (continuing) rise in interest rates

B. Developments in the Credit Market

 Local intermediation continues to be peso-funded but with some support from
foreign currency (FCY) sources

C. Continuous Demand for Credit by Corporate Enterprises and Households is Evident

in the Domestic Economy
 Continuous demand for credit is welcomed as it represents further “financial
deepening” of the economy
 One also has to appreciate the higher debt levels against the potential risks from
rising interest rates and the peso depreciation
 Debt service burden issue and is at the core of what is referred to as the 3Rs or
Repricing, Refinancing, and Repayment Risks

Page 16 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

V. EVALUATION

Objective Type of Quiz

TASK
ACTIVITY 1 Restricted Essay: In 5 sentences each explain and give
necessary example.

1. Why do central banks like the BSP needed in other bank’s

regulatory?

RUBRIC
Validity of Answer 3pts
Content Structure (spelling, grammar, punctuations) 1pts
Related Examples 1pts
TOTAL: 5pts

https://forms.gle/oEqTeXRrrDCGqXp88

VI. REFERENCE/S
- Texbook
❖ Cristobal M. Pagoso, 2014, Money, Credit and Banking, 856 Nicanor Reyes, Sr.
St., Sampaloc, Manila, Rex Book Store, Inc.
❖ Feliciano R. Fajardo, Manuel M. Manansala, 2008, Money, Credit and Banking,
Quad Alpha Centrum Bldg. 125 Pioneer Street Mandaluyong City 1550, National
Book Store, Inc.

- Online resources
❖ (PDF) The Economics of Money Banking and Financial Markets 7th20190515
79756 3jbzpu | Thuỷ Nguyễn - Academia.edu
❖ The Philippine financial system: issues and challenges - BIS Papers No 28, part
20, August 2006
❖ Financial System - MANILYN DR. NATABA (weebly.com)
❖ (1) (PDF) Philippine Financial System | Kathrina Bamba - Academia.edu
❖ Philippine financial-system....... (slideshare.net)
❖ The Philippine Financial System | PDF | Banks | Money (scribd.com)
❖ 3. THE Philippine Financial System - FIN 3153 THE PHILIPPINE FINANCIAL
SYSTEM Financial System • - StuDocu

Page 17 of 18
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

❖ Philippines : Financial System Stability Assessment-Press Release and

Statement by the Executive Director for the Philippines (imf.org)
❖ Structure of the Philippine Financial System by Kath Lauren (prezi.com)
❖ StatRep_1Sem2021.pdf (bsp.gov.ph)
❖ Bangko Sentral ng Pilipinas Media and Research - Report on the Philippine
Financial System (bsp.gov.ph)
❖ Chapter 1 Introduction TO Philippine Financial System - Accountancy - -
StuDocu
❖ The philippine financial system - THE PHILIPPINE FINANCIAL SYSTEM 1 As
well as the financial - StuDocu
❖ Philippine Financial System - Phi lippi ne Financi al Syst em Financial System:
Overview A vibrant - StuDocu
❖ Seal of the Insurance Commission | Official Website of the Insurance
Commission
❖ About the Commission | Official Website of the Insurance Commission
❖ Home - SEC - Securities and Exchange Commission
❖ pdic LOgo - Search (bing.com)

COMPILED BY: CHECKED BY:

ELEINE T. ALVAREZ ____________________

BA Instructor BSBA Dean / Coordinator

General Education Coordinator

APPROVED BY:

ROMEO M. PASCUA, Ph.D.

Vice-President of Academic Affairs

Page 18 of 18