Philippine Financial System Overview

Overview of the Philippine Financial System

• A financial system comprises institutions that facilitate fund exchange, including banks, insurance companies, and stock exchanges.
• Key components include financial markets, participants, instruments, and securities, impacting households, businesses, non-profits, and governments.
• Regulation is governed by the government to ensure proper functioning.

Functions of the Financial System

• Channels funds from savers (surplus units) to borrowers (deficit units).
• Serves as a medium for transactions, enhancing economic activity.
• Provides mechanisms for sharing financial risks among participants.
• Enables central bank influence to stabilize the economy.

Financial System Participants

• Households/Consumers:

  • Income primarily derived from wages or salaries.
  • Gross savings calculated by subtracting current expenditures from current income.

• Financial Institutions/Intermediaries:

  • Facilitate the flow of funds between savers and borrowers.
  • Include depository institutions like banks and non-depository institutions.

• Non-Financial Institutions:

  • Entities outside the financial sector such as manufacturers and traders, acting as either borrowers or lenders.

• Government:

  • Comprised of national and local government units, each with distinct governing bodies.

• Bangko Sentral ng Pilipinas (BSP):

  • Central monetary authority known as the “Bank of all Banks,” overseeing the financial system in the Philippines.

• Foreign Participants:

  • Engage in international trade and finance, contributing to globalization.

Overview of Savings

• Sources of savings include households, individuals, companies, and government agencies with cash inflows exceeding outflows.
• Financial intermediaries play a crucial role in directing savings to borrowers and investors.

Historical Development of Philippine Banking

• Spanish Period:

  • 1654: Obras Pias established as a banking institution.
  • 1851: First state bank, Banco Espanol-Filipino de Isabel II, founded.
  • 1882: Monte de Piedad Y Caja de Ahorros de Manila, the first savings bank, opened.

• American Period:

  • 1906: Establishment of the Postal Savings Bank.
  • 1937: Bank of Taiwan opened in Manila.

• Japanese Period:

  • 1942: Southern Development Bank branch established in Manila.

• New Society Period:

  • 1993: Creation of BSP as an independent monetary authority.

Founding of the Central Monetary Authority

• 1900: Act No. 52 placed all banks under the Bureau of Treasury.
• 1948: Republic Act No. 265 founded the Central Bank of the Philippines.
• 1993: Republic Act No. 7653 established the BSP.

Bangko Sentral ng Pilipinas (BSP)

• Vision: Aim to be a globally recognized monetary authority.
• Mission: Maintain price stability and promote a robust financial system.

Mandate of BSP

• Price Stability: Aim for a stable environment conducive to economic growth.
• Financial Stability: Strengthen the financial system's resilience against shocks.
• Payment Systems Oversight: Ensure sound payment practices.
• Access to Financial Services: Promote wide access to quality financial services.

Governance of BSP

• BSP Governor: Dr. Eli M. Remolona, Jr.
• Monetary Board: Responsible for monetary policy formulation and financial system supervision.

Core Functions of BSP

• Formulate and implement monetary policy for low inflation.
• Manage systemic risks to ensure financial stability.
• Ensure secure and reliable payment systems.
• Influence money supply for price stability.
• Exclusively issue national currency.
• Act as a lender of last resort to provide liquidity to banks.
• Manage foreign currency reserves for stability.
• Set and manage exchange rate policy.