Banks and Credit System of Exchange

Definition of Banks—Banks are financial institutions that help people to save and borrow money. In a growing economy, the banks help to create a new pool of money to be ised for other economic activities. They complement the money or cash system of exchange with the system of credit. History of Banking in the Philippines During the pre-colonial period, Filipinos also saved and borrowed money, but usually this was done by families, relatives of tribal leaders.

The oldest written relic of our precolonial past is the famous Laguna Copperplate inscriptin (LCI), which contains a record of a debt payment in 900A. D. It proves that we have a longt tradition of honoring our debts in our culture. Modern banking, as we know it, really began with the coming of the Europeans. The first credit organizations were the Obras Pias(pious work), created by the Spanish colonial government starting in the 16th century. It is interesting to know that the early Catholics in the Philippines were taught how to tithe(give 10 percent of income to the church).

Thus, thye early church in the Philippines was able to collect a fund od money, and its growth and good works increased tremendously. The first general bank in Southeast Asia was the Banco Espanol-Filipino (now known as Bank of the Philippine Islands), which opened in 1851. It was given authority to issue bank notes. Soon, other banks were opened. The Catholic Church anf their trustees owned and operated most banks during the Spanish colonial period. During the American period, more banks began operations.

In 1906, the government established postal savings banks all over the country to bring banking closer to the people. This Promoted the habit of thrift and savings among low-income groups. Now Americans, Chinese and Filipinos also entered the picture. In 1916 the philippine National Bank was organized. Other banks which followed were the China Banking Corporation and the Philippine Bank of Commerce. Before World War II there were 17 banks in the country. The PNB and Postal banks were owned by the Catholic Church and religious organizations, and two by Filipinos and others.

The Japanese m,ilitary occupation in 1941-45 briefly restructed Philippine banking. Only Japanese and their Filipino sympathizers were allowed to operate banks. In 1946, after independence, the otigins of our modern banking system were established. Prewar banks were re-opened and resumed operations. The Central Banking Act was passed in 1948. Today, there are thousands of banks all over the country, and some Filipino banks have opened branches abroad. Tyhe Volume of banking services has also increased, as more and more services are being offered.

Among these services are car loans, time deposits, automatic tellers, dreive-in windows, night depository, safe deposit boxes, payroll handling, automatic debits, and many more. KINDS OF BANKS There are different kinds of banks as follows: 1. Rural banks-These are located mostly in the countryside. The government encourages the establishment of these small banks in order to bring asavings and banking closer to people in the provinces. For example, a group may set up a rural bank with P20 million capital outside of metro Manila or cities; but p50 million is needed for a bank in the city.

The main reason for rural banks is to help farmers with agricultural loans. In 1994, the Pagsanjan Rural Bank founded by Victor Zaide cabreza and Soledad Benitez Cabreza, won the award fo “Outstanding Rural Bank in he Philippines” 2. Savings and loan association—These small banks gather savings and invest them in long term securities, such as housing loans. A good example is the Monte de Piedad Bank. 3. Special government banks—The Philippine government established several bnks to handle specific duties involving its financial projects.

For example, after the war, the Rehabilitation and Finance Corporation (RFC) was created to receive postwar reconstuction funds ang give financial aid to the war-damaged economy. The RFG eventually beame the Development bank of the Philippines (DBP). The Land Bank of the Philippines (LBP) helps the government implement the land reform program. The Philippine Amanah Bank was organized in 1970s to cater for the growing economic needs of Muslim Filpinos. The government may also operate postal banks within selected post iffides around the country.

Many small savers and children like to use postal banks because it is closer and more familiar to them. 4. Commercial banks—These make up the biggest banking group, and comprises nearly 50% of the total banking resources in the country. The main function of this type is to supply the circulating capital for the economy in the form of short-term loans. Example are the Philippine National Bank, Metrobank, BPI, FarEast Bank and Trust Company and others. 6. Universal Bank- Also known as a ful-service bank, a universal bank provides more servies than a commercial bank.

Banks which have reached a capitalixation of P50 million or more can apply for a universal banking liscence. A universal bank can make more investments and lending. It can act as an investment house, a savings bank etc. It can invest directlyin private companies. Several banks are iniversal banks, starting with the Philipine National Bank, republic Planters Bank, United Cocunot Planters Bank, Allied Bank, PCIB, BPI, Far East Bank and Trust Company, and Metrobank. 6. international banks—As the name says international banks have operations in more than one country.

Some Filipino bamks have branches in other countries, e. e. PNB, FEBTC, etc. Similarly, some foreign banks have branches in the Philippines, e. g. Hongkong ang Shanghai Chartered Bank, Citibank, Australia New Zealand, etc. Apart from the private banks, thee are government-owned banks, such as the International Bank for Reconstrucyion and Development (IBRD or World Bank) ased in Washington, D. C. ; the Asian Development Bank (ABD) based in Metro Manila; the Bank of International Settkements (BIS) based in Basle, Switzerland.

The Uses or Function of Banks— The services of banks are: 1. To accept aand guard deposits of money. People go to a bank because they trust that their money will not be stolen inside. ThePhilippine Deposit Insurace Corporation (PDIC) encures each depositor’s money up to a limit. In case the bank closes doen or is robbed, the depositor will still get their money bacl up to a fixed limit. In turn, the bank keeps a written list of the deposit in a savings book, a monthly statement or a certificate . For the right to use the money, the banks pay interest.

2. to lend money. Banks led money to qualified clients. in this way, the bank earns interest and profits. loans are ofdifferent kinds: are short-term. Loans may also be typedaccording to purpose( car loan, housing loan, business loan etc. ) This may be a property title, which the bank can get in case the loan is not paid. Next, bigl loans must have a co- signer or one who will guarantee to pay the loan if the borrower defaults 9faiks to pay). 3. To remit and collect money. Banks als transfer or collect money for clients.

for example, overseas contract workers can send their remittances to family through a bank to be picked up in Manila by the relative. A businesman can pay for a supply ordered from abroad through a local bank which send the payment to the foreign supplier. Usually, a bank has a correspondent bank abroad in case it does not have branches ther. Banks accept checks, bank dreafts or telegraphic transfers from other banks, according to certain conditions. 4.. To perform legal roles like supervising a business, managing a private