Banking in the Philippines

Universal Banking

• Universal banking combines the services of commercial and investment banks.
• It allows for a wide range of financial services.

Banking in the Philippines

• Financial products in the Philippines range from deposit accounts and high-end financial services to investment products.
• Other services provided by banks in the Philippines include credit cards, loans, and checking accounts.

Philippine Government Banks

• These are state-owned development banks.
• There are only three commercial banks of this type located in the Philippines:
  • Al Amanah Islamic Investment Bank
  • Development Bank of the Philippines (DBP)
  • Land Bank of the Philippines

Private Domestic Banks

• These banks are run by private corporations.
• They are the most common and accessible banks in the Phillippines:
  • Bank of the Philippine Islands (BPI)
  • Banco de Oro Universal Bank (BDO)
  • Metropolitan Bank and Trust Company (Metrobank)

Definition of Universal Banking

• It is a banking system that offers a wide array of banking and financial services, including insurance, development banking, and investment banking.
• Functions include commercial, retail, investment, and wholesale banking.
• All three service types are combined.
• This system offers asset management, deposits, payment processing, investment advisory, underwriting, securities transactions, financial analysis, merchant banking, factoring, mutual funds, credit cards, auto loans, insurance, housing finance, and retail loans.
• Participating banks can select and offer various services.
• Functions as commercial and investment banking to maintain investors’ faith and optimum resource utilization.
• Commercial banks, known as universal banks, provide a staggering array of services under one roof.
• Commercial banks offer services, including customer deposits, disbursing loans, locker facilities, demand draughts, credit cards, and remittance services.
• Minimum Capital: P20 billion is required for universal banks with more than 100 branches.
• It provides the same function as commercial banks while also functioning as investment houses and offers underwriting services.

Required Capitalization

• Universal banks require a minimum capital of P20 billion while commercial banks need P15 billion.
• Requirements increase depending on the number of branches.
• Commercial banks: P15 billion for those with more than 100 branches.
• Thrift Banks: P2 billion for those with head offices in Metro Manila, having more than 50 branches, and P800 million for those outside Metro Manila, having more than 50 branches.
• Rural Banks: P200 million for Metro Manila-based rural banks with more than 50 branches.

Universal Bank vs Commercial Bank

• Universal banks are commercial banks that offer a large range of services under one roof.
• Commercial banks provide mandatory services such as accepting deposits from customers, lending loans, locker facilities, demand drafts, credit cards, and remittance facilities.
• All universal banks are commercial banks, but not all commercial banks are universal banks.

Products Offered in a Universal Bank

• Credit loans
• Investment advisory
• Insurance services
• Deposit accounts
• Asset Management
• Payment Processing
• Underwriting
• Financial Analysis

Universal Banking

• Universal banking is a system where banks provide a variety of comprehensive financial services tailored to retail, commercial, and investment needs.
• A universal bank combines the main services of banking under one roof: wholesale, retail, and investment banking.

Retail Banking

• Retail banking offers financial services to the general population rather than companies.
• This helps customers conduct their daily financial dealings more effectively and safely.
• Retail banking is “consumer banking” between consumers and their banks.
• Consumer-oriented banking approach is provided on online portals and offline branches.
• Savings accounts, checking accounts, credit cards, consumer loans, debit cards, internet banking services, and mortgages are incorporated.
• Retail banking directly handles individual consumers, not enterprises.
• There are three types of retail banks: small, large, and online.
• Retail banking collects funds through service charges, overdraft charges, monthly maintenance fees, and modest fees.
• Products comprise checking and savings accounts, credit and debit cards, personal and home loans, and certificates of deposit.

Wholesale Banking

• Wholesale banking refers to the services provided by banks to large entities such as government sector agencies, financial institutions, large corporations, real estate developers, and investors.
• Retail banking focuses on individual consumers.
• Many banks provide both services parallelly.
• Wholesale banking serves large clients like government entities, big corporations, and other financial institutions.

Examples of Wholesale Banking

• Pension disbursement services to government entities
• Cash management
• Mergers and acquisitions
• Working capital financing services
• Consultancy
• Interbank lending
• Fund management
• Underwriting
• Federal agencies regulate and oversee both banking activities for both wholesale and consumer banking.

Wholesale Banking vs Retail Banking

• Wholesale banking caters to governments and corporations. Retail banking targets individuals and small companies.
• Transactions in wholesale banking constitute large transactions, while retail banking involves a high volume of small transactions.
• Non-Performing Asset (NPA) risk is high for wholesale banking but low for retail banking.
• Wholesale banking financial services include M&A, working capital financing, and pension disbursement services. Retail banking provides checking and savings accounts, housing loans, etc.

Investment Banking

• Investment banking creates new debt and security instruments, underwrites IPO processes, merges or acquires companies, and helps high-net-worth individuals and banks facilitate high-value investments.
• Underwriters take the financial risk of their client in return for financial fees.
• Financial institutions and large banks ensure enough liquidity by providing sufficient trading volume for market makers' operations.

Underwriting

• Underwriters take the financial risk of their client in return for financial fees.
• Financial institutions and large banks ensure enough liquidity by providing sufficient trading volume for market makers' operations.

Universal Banking Function

• Universal banking allows banks to choose and offer a wide range of services without compulsion; banks can choose services based on expertise. This enables providing a wide range of services under one roof. Universal banks must comply with guidelines for effective financial asset and transaction management.

Universal Banking Functions

• Operates as a commercial and investment bank.

Universal Banking as a Commercial Bank

• Commercial banking understands and complies with normal customers' basic financial needs and expectations.
• Banks offer regular services like savings accounts, current accounts, and credit to meet normal customer requirements.
• A customer's credit rating decides the commercial banks' enthusiasm towards fulfilling financial needs/expectations.

Universal Banking as an Investment Bank

• Banks work with entities or customers that participate in significant savings.
• Investment banks accept deposits from customers and invest in multiple areas, offering investment portfolios with varied risks.
• Customers provide savings for banks to invest and generate gains.

Services Offered by Universal Banks

• Universal banks can offer a range of banking and financial services, including credit cards, housing finance, auto loans, insurance, retail loans, factoring, merchant banking, mutual funds, underwriting, investment advisory, payment processing, securities transactions, deposits, asset management, and financial analysis.

Universal Banking vs Commercial Banking

• Universal Banking provides functions of more than one kind of banking and is defined as investment banking while commercial banking is an institution that performs certain functions.
• Universal banking performs functions of depositing money, lending loans, investing and insurance while commercial banking accepts deposits and lending loans to the public.
• Profit earning is not the main goal for universal banking while it is for commercial banking.
• Universal banking performs investment banking functions, which are not provided by commercial banks.

Advantages of Universal Banking

• Universal banks ensure the optimal utilization of all resources by assessing customers’ risk tolerance.
• Banks hold equity shares of entities, enabling them to gain trust and faith from investors.
• Risks can be diversified, with easy marketing and a wide range of services.

Disadvantages of Universal Banking

• They enjoy a monopoly in the market due to their larger size which may impact economies.
• Rules differ due to variety of services that they offer.

Conclusion

• Provides investment banking, retail banking, and wholesale banking, which many other banking systems and competitors fail to offer.
• The two main functions are commercial banking and investment.
• System offers asset management, auto loans, insurance, deposits, investment advisory, underwriting, mutual funds, credit cards, securities transactions, financial analysis, merchant banking, payment processing, factoring, housing finance, retail loans, etc.
• Universal banks are advanced commercial banks with an exclusive range of services that are updated versions of commercial banks and not universal, but not all commercial banks are universal.