The Philippine Financial System an Overview

 THE PHILIPPNE FINANCIAL SYSTEM THE STRUCTURE OF THE PHILIPPNE FINANCIAL SYSTEM 

FNANCIAL SYSTEM – a network that generates, circulates, and controls money and credit. SURPLUS SURPLUS INCOME – refers to the excess incomes of an individual. OBRAS PIAS – the first credit institution n the Philippines; started by Fr. Fr. Juan Fernandez de Leon in 1754 and ended in 1820. BANCO ESPAÑOL – Filipino de Isabella II the First Philippine Bank establish in 1851 FIRST AGRICULTURAL BANK OF THE PHILIPPINES – established n 1906 and in 1916 all of its asset and liabilities were transferred to the newly organized PNB. FNANCIAL MARKET – are physical locations or electronic forums that facilitate the flow of funds among nvestors, businesses and governments. It provides the mechanism for allocating financial resources of funds from savers to borrowers. ROLES OF THE FNANCIAL MARKET: 1. Money Money marke markett o oper perati ation on 2. Expedites Expedites the the transacti transaction on of financial financial claims claims 3. Serves Serves as a mean of bringing bringing the forces forces of demand demand and supply supply of financi financial al clams 4. Facilitates the the flow flow of funds among investors, business, business, and governments. 5. Provides the mechanisms mechanisms for allocating financial resources or funds funds from savers to borrowers. 6. Raises Raises money by selling selling shares shares to investors investors and and its existing existing share share can be bought or sold. 7. Where Where lenders lenders and their their agents agents can can meet borr borrowers owers.. 8. Convenes Convenes many many interes interested ted sellers sellers n one one place. place. 9. Provides Provides the the place where where many many commodities commodities are are traded. traded. 10.Used to match those who want capital to who have it. 11.Facilitates:  The raising capital in capital markets  The transfer of risk in the derivatives market International trade in the currency market • • •

1942 – PNB closes its doors because of the coming of the Japanese imperial Forces. Rehabilitation Finance Corporation – formed in 1946 to provide credit facilities for the rehabilitation of agricultural, commerce and industry reconstruction of  war-damaged war-damaged properties and later become the Development Bank of the Philippines. Offshore Banking Units – any branch, subsidiary of affiliate of Foreign Banking Corporation that conduct banking transactions in foreign currencies.

BANGKO SENTRAL NG PILIPINAS AND ITS ROLE

N THE DEPOSIT EXPANSION AND

 MONEY SUPPLY

CENTRAL BANK – a financial institution vested by the State with the function of  regulating the supply, cost and use of money with a view to promoting national and international economic stability and welfare. DEVELOPMENT OF THE BANGKO SENTRALNG PILIPNAS   The central bank of countries within the region of Southeast Asia are comparatively young having been established mostly only after the end of  the Second World War. The Philippines, a young nation, is not an exception. It established its central bank only on January 3, 1949,  The concept of a central bank was developed in 1933 by Miguel Cuaderno, the first governor of the Central Bank of the Philippines. The Central Bank of  the Philippines was patterned after similar central banks established in Paraguay and Guatemala, two countries which, like the Philippnes have the same export economies. The Central Bank of the Philippines came to existence as a result of the approval by the former President Elpdio Qurino pf  Republic Act No. 265, otherwise known as the “Central Bank Act” on June 15, 1948. However, actual operations did not commence until January 3, 1949 when the bank open its doors for business in the old Intendencia Building located at Intramuros, Manila. With the accumulation of losses incurred by the Central Bank, P317B as of  December 1992, there emerged the CMA bill to transform the Central Bank into Central Monetary Authority. This CMA bill is also in response to a call of  the International monetary Bank and World Bank to ease the foreign debt burden and strengthen the credit standing of the Philippines. And then when the CMA law also known as “The New Central Bank Act” took effect on June 14, 1993 there is established an independent Central Monetary Authority which is known as the “Bangko Sentral ng PilipInas” and has a capital of P50 billion.  THE FUNCTION OF THE BANGKO SENTRAL NG PILIPNAS •

Liqudity Management

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Currency Issue

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Lender of Last Resort

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Financial Supervsion

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Management of Foreign Currency Reserves

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Determination of Exchange Rate Policy

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Other Activities (Functions as the banker, financial advisor and official depository of the Government)

OBJECTIVES OF BSP 1. To maintain price stability conducive to a balanced and sustainable growth of  the economy 2. To promote and maintain monetary stability and convertibility of the Philippine peso THE BSP ON MONEY

SUPPLY AND DEPOSIT EXPANSION

MONEY SUPPLY – the sum of notes and coins in the circulation and peso demand depositions subject to withdrawal by check DEPOSIT EXPANSION – the change in money supply as a result of an increase in bank reserve MONETARY BOARD – policy making body of the BSP; exercise the powers and functions of the BSP  THE MAIN FUNCTONS OF THE MONETARY BOARD 1. Issues rules and regulations it considers necessary for the effective discharge of the responsibilities and exercise the powers vested upon it. 2. Direct the management, operations and administration of the BSP 3. Establish a human resource management system 4. Adopt an annual budget for and authorize such expenditures by Bangko Sentral 5. Indemnify uts members and other officials of Bangko Sentral  THE BSP MONETARY BOARD Chairman: Armando M. Tetangco, Jr. Members: Juanito D. Amatong Alfredo C. Antonio Raul A. Boncan Ignacio R. Bunye Peter Favila Nelly F. Villafuerte

 MONETARY POLICY AND ITS OBJECTIVES

MONETARY POLICY – the management of the expansion and contraction of the volume of money in circulation for the explicit purpose for attaining a specific objective. CENTRAL BANK OF THE PHILIPPINES – responsible for executing the monetary policy; gives primary and immediate importance to the maintenance of monetary stability CONFIDENCE OF MONEY – basis for all economic activities in a society based upon credit ADVANTAGES 1. Impersonal 2. Flexible in operation 3. Operates for the most part free from the weight of political pressures DISADVANTAGES 1. Attempts to change available money supply through the banking system 2. Results to high-priced goods and services QUANTITATIVE AND SELECTIVE INSTRUMENTS 1. QUANTITATIVE (Open Market Operations) – used to regulate total quality of  money available for all purposes 2. SELECTIVE – employed to limit the amount of money available for certain specific purposes RELATION OF INTEREST RATES TO SAVINGS AND INVESTMENT INVESTMENT – induce a significant increase when the depressions of driving interest rates down SAVINGS – it is contended when there is an increase in interest rate  TIGHT MONEY POLICY AND EASY MONEY POLICY  TIGHT MONEY SUPPLY – contraction of money supply EASY MONEY POLICY – expansion of money supply

FINANCIAL STABILITY SSUES AND CHALLENGES

KEY FACTORS THAT AFFECTS THE FINANCIAL SYSTEM: 1. Financial Resources 2. Banking System 3. Non-Bank Financial institution ISSUES ARISNG 1. Financial Stability 2. Integrated Regulator (s) 3. Financial Transparency 4. Deregulation of Financial Market 5. Rapid Financial Innovation 6. Space Age Technology] CHALLENGES ENCOUNTERED 1. Improving Asset Quality 2. Managing Risk Exposure 3. Developing the Domestic Capital Market