1 BANKING AND FINANCIAL INSTITUTION.docx

**LESSON 1 BANKING AND FINANCIAL INSTITUTION** **THE BASICS OF THE FINANCIAL SYSTEM** **Financial Institutions** Financial provide financial services for members and clients. It is also financial intermediaries because they act as middlemen between the savers and borrowers. **Banks** Banks are...

**LESSON 1 BANKING AND FINANCIAL INSTITUTION** **THE BASICS OF THE FINANCIAL SYSTEM** **Financial Institutions** Financial provide financial services for members and clients. It is also financial intermediaries because they act as middlemen between the savers and borrowers. **Banks** Banks are financial institution intermediaries that lend money to borrowers to generate revenue and accept deposits. They are typically regulated heavily, as they provide market stability and consumer protection. **Banks Include:** 1. Public 2. Commercial bank 3. Central banks 4. Cooperative banks 5. Government-managed cooperative banks 6. Government-managed land development banks **Non-Bank Financial Institutions** Non-bank financial institutions facilitate financial services like investment, risk pooling, and market brokering. They generally do not have full banking licenses. **Non-bank financial institutions include:** 1\. Finance and loan companies 2\. Insurance companies 3\. Mutual funds 4\. Commodity traders **Financial markets** Financial markets are markets in which securities, commodities, and fungible items are traded at prices representing supply and demand. The term \"market\" typically means the institution of aggregate exchanges of possible buyers and sellers of such items. **Financial Instruments** Financial instruments are tradable financial assets of any kind. They include money. evidence of ownership interest in an entity, and contracts. **A. Cash instruments** A cash instrument\'s value is determined directly by markets. They may include securities. loans, and deposits. **B. Derivative instruments** A derivative instrument is a contract that derives its value from one or more underlying entities (including an asset, index, or interest rate). **Financial services** Financial services are offered by many businesses that encompass the finance industry. These include credit unions, banks, credit card companies, insurance companies, stock brokerages, and investment funds. History and Nature of the Philippine Financial System in the Philippines settings, Financial System is composed of banking institutions and nonbank financial intermediaries, including commercial banks, specialized government banks. **TYPES OF BANKS** In the Philippines, banks are categorized based on their functions, services, and regulatory frameworks. Here are the main types of banks in the Philippines: **1. Universal Banks** - The largest and most versatile banks, offering a full range of financial services including commercial banking, investment banking, and non-bank services like insurance and stock brokerage. - **Services:** Deposits, loans, foreign exchange, investment banking, trust services, etc. **2. Commercial Banks** - Offer a wide array of banking services like deposit-taking, loans, credit, and payment services for businesses and individuals. They are similar to universal banks but with a narrower range of activities. - **Services:** Corporate loans, consumer banking, trade finance, etc. **3. Thrift Banks** - Also known as savings banks, these cater primarily to individuals and small- to medium-sized enterprises (SMEs). Their focus is on mobilizing savings and providing loans for housing, vehicles, and small businesses. - **Services:** Savings accounts, mortgages, personal loans, etc. **4. Rural Banks** - Typically located in rural areas, these banks are designed to promote financial inclusion by serving the financial needs of farmers, small businesses, and rural communities. - **Services:** Agricultural loans, microloans, basic savings accounts, etc. **5. Cooperative Banks** - Owned and managed by cooperatives, these banks primarily serve cooperative members and are usually found in rural areas. They focus on community development and financial support for cooperative members. - **Services:** Savings, loans for agricultural and cooperative projects. **6. Digital Banks** - Fully digital financial institutions with no physical branches. They offer online banking services, making them accessible through mobile apps and websites. - **Services:** Digital savings accounts, payment services, online loans, etc. **7. Islamic Banks** - Operate according to the principles of Islamic law (Shariah) and do not charge or pay interest. Instead, they engage in profit-sharing agreements and ethical investments. - **Services:** Islamic financing, Halal investments, Shariah-compliant savings. **8. Development Banks** - Provide financial support for projects that contribute to economic development, particularly in agriculture, infrastructure, and small businesses. - **Services:** Project financing, SME loans, agricultural loans. Each type of bank in the Philippines has a specific focus, catering to different segments of the population and industries.