The Philippine Financial Market

Financial Markets & Non Bank Financial Institutions  An Overview of the Financial System

Flow of Funds Through The Financial System INDIRECT FINANCE

Financial Intermediaries

Lenders  – Savers

Borrowers - Spenders

1. 2. 3. 4.

1. 2. 3. 4.

Households Business Firms Government Foreigners

Financial Markets

DIRECT FINANCE

Business Firms Government Households Foreigners

Direct Finance Lenders  – Savers 1. 2. 3. 4.

Households Business Firms Government Foreigners

Financial Markets

Borrowers - Spenders 1. 2. 3. 4.

Business Firms Government Households Foreigners

Function of Financial Markets

FINANCIAL MARKETS channel funds from savers to spenders FINANCIAL MARKETS are important because They improve the economy They improve the welfare of consumers  

Structure of Financial Markets

DEBT & EQUITY MARKETS Debt Market (Borrowings) e.g. Bond Mortgage Equity Market (Shareholdings) e.g. Common Stock Preferred Stock

Structure of Financial Markets Primary and Secondary Markets Primary Market Initial Public Offering (IPO) Rights Offering Private Placement

Secondary Market Exchanges Over-the-Counter (OTC) Market

OTC in the Philippines Stocks sold over the counter are outside the  jurisdiction of the PSE Some securities such as bonds sold are subject to the requirements of the Bangko Sentral ng Pilipinas (BSP) Circular 392 and its related regulations, including the rules governing the Over-the-Counter (OTC) Fixed Income Market issued by the Securities Exchange and Commissions (SEC) Memorandum Circular 14.

Structure of Financial Markets Primary Market: Sample IPO Process

Other Inv. Bankers

ISSUER

Originating Inv. Banker

SELLING GROUP

INVESTORS

Other Inv. Bankers

Underwriting Syndicate

Structure of Financial Markets Money & Capital Markets Money Market Security Traded: Maturity:

Debt < One Year

Capital Market Security Traded: Maturity:

Debt and Equity At least One Year (for debt) No Maturity for Equity

Internationalization of Financial Markets International bond market (foreign bonds) Eurobonds Eurocurrencies World stock markets

Indirect Finance Lenders  – Savers 1. 2. 3. 4.

Households Business Firms Government Foreigners

Financial Intermediaries

Borrowers - Spenders 1. 2. 3. 4.

Business Firms Government Households Foreigners

Function of Financial Intermediaries FINANCIAL INTERMEDIARIES are institutions that borrow funds from savers and then lends these funds to others FINANCIAL INTERMEDIATION is the process of indirect finance whereby financial intermediaries link savers and borrowers

Function of Financial Intermediaries Financial intermediaries are important because: They can reduce transaction costs They can provide customers with liquidity services  

Other Concepts Risk sharing (asset transformation)  Asymmetric information  – financial panic  Adverse Selection Moral Hazard

 

 

Financial Intermediaries in the Philippines Type of Institution

Components

Regulator/s

Banking

Universal, Commercial, Thrift, Rural, Specialized Government, Microfinance

BSP, SEC

Non-Bank Financial

Investment Houses

BSP, SEC

Financial Companies

SEC

Securities Dealers

SEC

Investment Companies

SEC

Insurance Companies

SEC, IC

Pawnshops

SEC, BSP

Pre-need Companies

SEC

Venture Capital Corporations

SEC

Mutual Building and Loan  Associations Non-stock Savings and Loans

SEC

Non-Bank Thrift

SEC