Financial System PDF

TABLE 1.
ASSETS OF THE FINANCIAL SYSTEM (in billion pesos)
1998 1997 1996 1995 1994 1993 1992 1991 1990

BANKS
Commercial Banks 2,528 2,513 1,926 1,272 976 773 645 569 513
(%age of total system) 0.74 0.75 0.82 0.71 0.69 0.68 0.71 0.74 0.77
Expanded 1,580 1,028 795 592 478 108 349
Non-expanded 143 129 95 105 103 97 97
Foreign 203 115 87 76 64 64 67
Specialized Government 175 157 146 91 59 40
Thrift Banks 216 208 184 141 104 74 60 47 37
Savings and Mortgage 133 106 96 86 67 44 36 30 22
Private Development 64 81 69 42 28 22 17 12 11
Stock Savings and Loan Asso. 20 21 19 12 9 7 6 5 4
Rural 59 58 47 36 28 22 18 15 13
TOTAL BANKING 2,803 2,779 2,157 1,624 1,265 1,015 814 690 603
%AGE OF SYSTEM 0.82 0.82 0.92 0.91 0.90 0.90 0.90 0.89 0.90
NON-BANKS FINANCIAL INTERMEDIARIES

NBQB 21.00 14.00 11.00 14.00 14.00 13.00 11.00
Investment Houses 17.00 11.00 8.00 6.00 5.00 7.00 6.00
Financing Companies 4.00 3.00 3.00 8.00 8.00 6.00 5.00
Other Non-bank 153.00 142.00 121.00 96.00 74.00 65.00 51.00
Investment Houses 25.00 16.00 9.00 6.00 5.00 5.00 3.00
Financing Companies 27.00 24.00 23.00 16.00 12.00 9.00 7.00
Investment Companies 13.00 19.00 19.00 16.00 14.00 13.00 11.00
Securities Dealers/Brokers 11.00 8.00 9.00 8.00 4.00 3.00 2.00
Pawnshops 9.00 8.00 6.00 5.00 4.00 3.00 3.00
Fund Managers 3.00 3.00
Lending Investors 5.00 5.00 5.00 3.00 3.00 2.00 1.00
Government NBFI 62.00 62.00 49.00 41.00 32.00 26.00 20.00
Venture Capital Corp. 0.10 0.09 0.09 0.09 0.11 0.10 0.10
TOTAL NON-BANK FINANCIAL INTERMEDIARIES 174.00 156.00 132.00 110.00 88.00 78.00 62.00
NON-BANK THRIFT INSTITUTIONS 16.00 13.00 11.00 9.00 7.00 5.00 5.00
Non-stock Savings and Loan Asso. 16.00 13.00 11.00 9.00 7.00 5.00 5.00
Mutual Building and Loan Asso. 0.16 0.16 0.13 0.11 0.02 0.02 0.02
TOTAL NON-BANK 616.3 590.3 190.00 169.00 143.00 119.00 95.00 83.00 67.00
TOTAL 3,419.30 3,369.30 2,347.00 1,793.00 1,408.00 1,134.00 909.00 773.00 670.00
SOURCES: 1996 Fact Book of the Financial System, Bangko Sentral ng Pilipinas for 1990-1996 series
April 1999 Selected Philippine Economic Indicators for 1997-1998 series
*Difference between the two series may be due to the inclusion or non-inclusion of private insurance the non-bank figures.
TABLE 2. LOAN PORTFOLIO OF THE FINANCIAL
SYSTEM
(in million pesos)
1996 1995 1994 1993 1992 1991 1990
BANKS 1,358,166 963,681 707,448 552,695 400,610 332,281 290,545

(%age of total assets of banking system) 0.63 0.59 0.56 0.54 0.49 0.48 0.48
Commercial Banks 1,206,614 749,970 535,883 415,839 306,470 264,089 239,106
Expanded 1,004,373 606,927 445,510 327,580 234,990 194,322 168,835
Non-expanded 95,529 77,270 50,761 54,090 48,033 47,777 49,019
Foreign 106,712 65,773 39,612 34,169 23,447 21,990 21,252
Specialized Government Banks 102,658 89,301 77,381 47,889 29,812 19,063
Thrift Banks 118,829 86,779 63,667 44,441 34,057 28,083 23,051
Savings and Mortgage 63,619 53,520 39,873 26,588 20,577 18,302 14,785
Private Development 44,703 27,116 19,304 14,181 10,565 7,337 6,069
Stock Savings and Loans Asso. 10,507 6,143 4,490 3,672 2,915 2,444 2,197
Rural Banks 32,723 24,274 18,597 15,034 12,194 10,297 9,325
NON-BANK FINANCIAL INTERMEDIARIES 106,999 94,114 76,623 65,529 49,059 40,583 31,433
Non-banks with Quasi-banking Functions 11,215 8,450 4,546 9,608 9,610 8,935 7,537
Investment Houses with QBF 8,023 5,882 2,656 3,147 3,313 4,051 3,717
Financing Companies with QBF 3,192 2,568 1,890 6,461 6,297 4,884 3,820
Other Non-bank Financial Intermediaries 95,784 85,664 72,077 55,921 39,449 31,648 23,896
Investment Houses w/o QBF 13,046 7,875 4,400 3,512 3,385 3,261 2,373
Financing Companies w/o QBF 20,889 18,412 18,784 12,243 9,095 6,400 5,341
Investment Companies 2,147 2,204 2,204 2,208 1,912 1,843 1,564
Securities Dealers/Brokers 5,806 4,999 5,595 5,682 3,194 1,875 1,520
Pawnshops 7,158 5,588 4,598 3,601 3,201 2,575 1,921
Fund Managers 1,496 1,603
Lending Investors 3,353 3,208 3,412 2,143 1,733 1,321 917
Government NBFI 43,366 43,366 33,075 26,519 16,914 12,868 8,641
Venture Capital Corporations 19 12 9 13 15 9 16
NON-BANK THRIFT INSTITUTIONS 12,986 10,332 8,400 7,270 5,651 4,600 4,333
Non-stock Savings and Loan Asso. 12,902 10,250 8,385 7,264 5,646 4,594 4,326
Mutual Building and Loan Asso. 84 82 15 6 5 6 7
TOTAL LOAN PORTFOLIO 1,478,151 1,068,127 792,471 625,494 455,320 377,464 326,311
SOURCE: Financial Fact Book, 1996, Bangko Sentral ng Pilipinas

TABLE 3. DEPOSITS IN THE FINANCIAL SYSTEM
(in millions of pesos)
1996 1995 1994 1993 1992 1991 1990
BANKS
Commercial Banks 1,140,606 817,133 661,024 514,949 415,812 364,158 312,980
(%age of total bank deposits) 0.88 0.80 0.82 0.79 0.83 0.86 0.87
Expanded 993,567 685,368 555,680 417,391 325,073 281,116 232,400
Non-expanded 95,359 89,758 63,271 64,653 64,696 60,059 57,970
Foreign Banks 51,680 42,007 42,073 32,905 26,043 22,983 22,610
Specialized Government 87,025 65,177 70,739 36,699 19,017 12,189
Thrift Banks 122,502 91,241 63,475 50,231 40,130 33,658 26,839
Savings and Mortgage 63,734 57,242 42,153 33,490 28,220 23,496 17,706
Private Development 45,447 25,308 15,278 11,482 7,594 6,454 6,106
Stock Savings and Loan Asso. 13,321 8,691 6,044 5,259 4,316 3,708 3,027
Rural Banks 30,224 23,251 17,447 13,336 10,463 8,491 7,010
TOTAL DEPOSITS 1,293,332 1,018,650 807,123 649,255 503,104 425,324 359,018
SOURCE: Financial Fact Book 1996, Bangko Sentral ng Pilipinas

TABLE 4. OUTPUT OF FINANCIAL SECTOR, 1990
(in thousand pesos)
Banks Non-banks Insurance
Palay 7,723.00 31,600.00 97,674.00

Corn 20,457.00 10,827.00 15,033.00
Coconut/copra 1,112.00 5,928.00 12,450.00
Sugarcane 11,098.00 8,157.00 19,793.00
Banana 29,719.00 13,020.00 12,525.00
Other crops incl. agri. svcs. 45,616.00 99,111.00 69,067.00
Livestock 8,929.00 123,988.00 48,095.00
Poultry 15,084.00 48,514.00 21,367.00
Fishery 61,278.00 266,468.00 36,402.00
Forestry 7,085.00 26,258.00 26,683.00
Copper mining 7,345.00 12,118.00 17,991.00
Gold mining 12,906.00 22,438.00 33,904.00
Chromium mining 2,037.00 796.00 5,390.00
Nickel mining 242.00 482.00 1,202.00
Other metal mining 7,154.00 497.00 720.00
Stone quarrying & sand pits 19,915.00 7,050.00 12,361.00
Other non-metallic mining & quarrying 55,343.00 13,551.00 12,420.00
Food manufactures 1,147,528.00 530,188.00 211,109.00
Beverage industries 49,049.00 52,493.00 48,723.00
Tobacco manufactures 274,891.00 55,682.00 48,855.00
Textile manufactures 156,081.00 51,704.00 75,543.00
Footwear, wearing apparel 159,829.00 47,638.00 52,375.00
Wood & wood products 343,121.00 63,151.00 86,408.00
Furniture & fixtures 77,601.00 38,007.00 27,513.00
Paper & paper products 56,784.00 25,583.00 24,223.00
Publishing & printing 16,290.00 22,659.00 16,096.00
Leather & leather products 16,044.00 1,649.00 1,067.00
Rubber products 24,780.00 14,613.00 7,022.00
Chemical & chemical products 323,719.00 110,227.00 86,727.00
Products of petroleum & coal 2,196.00 12,353.00 2,410.00
Non-metallic mineral products 151,304.00 68,464.00 52,803.00
Basic metal industries 144,222.00 70,596.00 17,300.00
Metal fabrication 52,099.00 57,530.00 32,342.00
machinery except electrical 16,205.00 7,183.00 9,687.00
Electrical machinery 167,112.00 82,370.00 48,674.00
Transport equipment 166,156.00 55,943.00 14,454.00
Miscellaneous manufactures 16,863.00 8,456.00 10,392.00
Construction 872,738.00 378,351.00 202,534.00
Electricity & Gas 595,020.00 113,783.00 6,574.00
Water 273,876.00 2,957.00 2,578.00
Land transport 877,100.00 235,550.00 262,467.00
Water transport 189,823.00 22,454.00 136,962.00
Air transport 621,871.00 110,984.00 361,831.00
Storage & svcs. incidental to transp. 132,769.00 56,967.00 126,494.00
Communication 145,762.00 37,625.00 57,176.00
Trade 7,677,641.00 499,424.00 1,558,202.00
Banks 863,688.00 86,687.00 341,673.00
Non-banks 700,480.00 22,909.00 69,977.00
Insurance 224,358.00 22,455.00 204,778.00
Real estate 178,439.00 32,434.00 738,656.00
Ownership of dwellings 0.00 0.00 0.00
Government services 4,786,129.00 0.00 242,258.00
Private education 45,150.00 33,224.00 141,653.00
Private helath 15,877.00 26,694.00 24,969.00
Private business services 183,256.00 65,631.00 115,708.00
Private recreational services 125,897.00 73,043.00 44,818.00
Private personal services 113,837.00 104,687.00 38,123.00
Hotels & restaurants 342,168.00 77,818.00 180,836.00
Other private services 21,471.00 15,973.00 6,023.00
Total Intermediate Demand 22,662,267.00 4,086,942.00 6,181,090.00
Personal Consumption Expenditure 13,168,027.00 2,676,865.00 3,444,064.00
General Government Current Expenditure 0.00 0.00 0.00
Gross Fixed Capital Formation 0.00 0.00 0.00
Change in Stocks 0.00 0.00 0.00
Exports 11,490,236.00 3,528,894.00 455,652.00
Imports -9,551,000.00 -739,511.00 -589,298.00
Total Final Demand (PCE+GFCF+CS+E+M) 15,107,263.00 5,466,248.00 3,310,418.00
Total Output (TID+TFD) 37,769,530.00 9,553,190.00 9,491,508.00
SOURCE: 1990 Input-Output Tables, National Statistics Office

TABLE 5. INPUTS TO THE FINANCIAL SECTOR
(in thousand pesos)
DESCRIPTION Banks Non-banks Insurance
Palay 0 0 0
Corn 0 0 0
Coconut/copra 0 0 0
Sugarcane 0 0 0
Banana 0 0 0
Other crops incl. agri. svcs. 0 0 0
Livestock 0 0 0
Poultry 0 0 0
Fishery 0 0 0
Forestry 0 0 0
Copper mining 0 0 0
Gold mining 0 0 0
Chromium mining 0 0 0
Nickel mining 0 0 0
Other metal mining 0 0 0
Stone quarrying & sand pits 0 0 0
Other non-metallic mining & quarrying 0 0 0
Food manufactures 0 0 0
Beverage industries 0 0 0
Tobacco manufactures 0 0 0
Textile manufactures 0 100 124
Footwear, wearing apparel 0 188 0
Wood & wood products 0 78 74
Furniture & fixtures 62376 28982 7855
Paper & paper products 315183 53065 50559
Publishing & printing 399179 98690 78695
Leather & leather products 0 0 0
Rubber products 55429 1855 7240
Chemical & chemical products 405988 159668 47407
Products of petroleum & coal 267328 92855 94842
Non-metallic mineral products 0 0 1
Basic metal industries 0 0 0
Metal fabrication 112703 3855 1241
machinery except electrical 45500 11032 19014
Electrical machinery 217942 7088 4795
Transport equipment 134196 7269 1736
Miscellaneous manufactures 998853 38338 83441
Construction 151157 21876 11662
Electricity & Gas 618492 62291 88308
Water 131219 31952 15017
Land transport 237058 103231 121181
Water transport 36540 7238 9670
Air transport 986292 387045 80253
Storage & svcs. incidental to transp. 14912 5270 7329
Communication 300147 107813 112072
Trade 271645 72274 66492
Banks 863688 700480 224358
Non-banks 86687 22909 22455
Insurance 341673 69977 204778
Real estate 908765 328378 197418
Ownership of dwellings 0 0 0
Government services 0 0 0
Private education 0 1630 513
Private helath 10050 2518 10222
Private business services 1134651 670551 346288
Private recreational services 0 311 0
Private personal services 249383 55946 19289
Hotels & restaurants 128073 63841 518508
Other private services 78233 29021 23339
--------------------------------------------- - - -
Total Intermediate Inputs(Sum rows 1 to 59) 9563342 3247615 2476176
--------------------------------------------- - - -
Compensation of employees 6124010 1449792 1569618
Depreciation 2881299 544629 345072
Indirect Taxes Less Subsidies 1109755 384367 444061
Operating Surplus 18091124 3926787 4656581
--------------------------------------------- - - -
Total Primary Inputs(C + D + IT-S + OS) 28206188 6305575 7015332
--------------------------------------------- - - -
Total Inputs (TII + TPI) 37769530 9553190 9491508
============================================= = = =
SOURCE: 1990 Input-Output Table, National Statistics Office
TABLE 6. REAL DEPOSIT RATES (in percent)
Savings Deposits Time Deposits Inflation Rate Real Saving Deposit Rates
1990 10.873 20.208 14.2 -3.327

1991 11.043 18.542 18.7 -7.657
1992 10.568 14.057 8.9 1.668
1993 8.265 10.369 7.6 0.665
1994 7.993 10.718 9 -1.007
1995 7.992 9.308 8.1 -0.108
1996 7.954 11.489 8.4 -0.446
1997 9.111 11.188 5.1 4.011
SOURCE: Selected Philippine Economic Indicators, 1997 Yearbook, Bangko Sentral ng Pilipinas
A Review of Philippine Financial Services Under an Increasingly Globalized World
Ann B. Bordon and Filomeno S. Sta. Ana III1
Financial liberalization has triumphed over the old system of financial restriction. Ever since
the 1970s, the Philippines has never looked back from gradually shedding off the restrictive laws and
interventionist policies of the state.
In the span of three decades, the countrys financial sector went through significant changes,
though most of the reforms were introduced and carried out only in the 1990s. Foreign banks
equity participation in domestic banks has been allowed. And if Congress approves the proposed
amendments to the General Banking, foreign banks can exercise 100 percent ownership of domestic
banks. Operations of foreign banks have likewise been liberalized, albeit with some restrictions (e.g.,
limit on number of foreign banks that can do business and a limit on the number of branches they
can set up). The foreign exchange market has likewise gone through an overhaul with the
establishment of the Philippine Dealing System (PDS). And much earlier, government had already
allowed interest-rate setting for commercial lending to be determined by the private sector, thus
making the Usury Act of 1916 inoperative (a dead law, if you will).
Nevertheless, the financial sectorin particular, the banking sectorhas remained

vulnerable to both internal and external threats. The recent Asian financial crisis exposed the
institutional weaknesses in the financial system, including problems in regulation and supervision.
Deficient laws, inappropriate policies, and weak regulation and supervision all contributed to
imprudent lending/investment activities and unhedged borrowing (specifically, the short-term
foreign borrowing spree) committed by a large segment of the private sector.
Against this background, the pursuit of reforms towards freer but soundly regulated financial
institutions has gained greater momentum. The momentum for reforms in the financial sector is
likewise being accelerated by external forces like the World Trade Organization (WTO) and the
ASEAN Free Trade Area (AFTA).
Both the WTO and AFTA have taken steps towards the simultaneous opening of the services
sector, including financial services, to the global markets. In the Uruguay Round of trade
negotiations in 1996, the General Agreement on Trade in Services (GATS) was established to govern
the international flow of services. Likewise, the ASEAN Framework Agreement on Services (AFAS)
was created to facilitate regional trade in services, hastening the process initiated by the WTO.
The Philippine government has made more relatively advanced commitments to liberalize
vis--vis the business and professional services, especially in auditing and tourism. The financial
sector, on the other hand, has been given some sort of breathing space, but the day of reckoning is
looming.
The paper explores the strength and weaknesses of the financial sector in the context
discussed above. How competitive are our banks and non-bank financial institutions in light of the
1
Action for Economic Reforms is grateful to Ms. Ann Bordon, currently pursuing her doctorate studies in
Columbia, for assuming the principal task of writing this paper
September 1999 A Review of Philippine Financial Services
irreversible liberalization process,2 the lingering impact of the Asian financial crisis, and the
globalization of services?
To define the competitiveness of the Philippine financial sector, is admittedly difficult to do.
In the first place, there is a lot of debate on what competitiveness really means.
One way is to look at competitiveness in terms of comparing the performance of the

Philippine financial system with that of other countries, (e.g., with countries in East and Southeast
Asia or with countries belonging to the same level of living standards). In this regard, it is important
to use international standards, with the Basle standards as principal benchmark, to guide the
implementation of reforms in the financial sector. The qualification is that international standards
by themselveswithout reducing their significancemay not capture the specific environment or
context obtaining in the country. The Philippine banking sector, for example, has met the
regulatory capital standards (perhaps, from an accounting perspective) recommended by the Basle
Committee on Banking Supervision. In spite of this, the Philippine banking system is vulnerable to
internally induced economic shocks as well as to contagion effects.
To complement the test of international standards, competitiveness should likewise be

measured in terms of whether the financial sector is doing the best it canthat is, how efficient is
the finance sector in performing its business, regardless of the performance of other countries.
The term liberalization also has different contexts. Liberalization in the context of financial
reform refers to the freeing of the financial markets, which includes credit, exchange rate, money
markets, etc. Liberalization in the context of integration refers to the process of increasing the
openness of the domestic economy to the global market (Tullao, 1998).
At the outset, it must be said that this paper recognizes the complementation of liberalization
and regulation. While there can be tension between the two, we stress that the liberalization process
in the Philippines is a key to make the Philippine financial sector competitive, even as we
acknowledge that the different types of liberalization require the appropriate pacing and sequencing
3
policies. An equally important point is that liberalization of financial services necessitates effective,
transparent regulation and supervision.
Against this background, we proceed to the body of the paper, which is divided into seven
sections, including the conclusion. The papers first section provides the particular context in which
the study is madethat is, making the Philippine financial sector ready for globalization, as
expressed in the countrys commitments to the General Agreement on Trade in Services (GATS).
The second part provides an overview of the financial sector. A discussion of the input-output data
for the financial sector follows. The next part (the fourth) moves the discussion to explaining the
reforms and problematic issues in the banking sector. The fifth part deals with the issues and
reforms with regard to the non-bank financial intermediaries. Admittedly, this section is not as
elaborated as the preceding one. A special subsection within the non-bank financial intermediaries
2
Notwithstanding criticisms against the Estrada administration for backtracking on certain economic reforms, the
key economic policy-makers are committed to the continuity of the liberalization process. Even President Estrada
has time and again said that his administration is pro-liberalization. (He has even invoked the liberalization
argument to justify Charter change.)
3
Liberalization of the capital account is a good example.
2
is devoted to the insurance industry, including social insurance and pension funds. The conclusion
highlights the major issues and policy recommendations.
I. The Financial Sector Amidst Globalization
Financial services, along with transport, tourism, and communication services, are included
in the country's commitments to the General Agreement on Trade in Services or GATS (Avila,
1999). The principles of most favored nation (MFN), national treatment, and market access are
promoted in the agreement. However, unlike the GATT, the granting of these privileges is subject
to certain conditions: the MFN principle offers of the Philippines is softened by reciprocity
conditions, while both market access and national treatment are subject to positive lists and contain
limitations.
GATS encompasses four modes of supply: 1) cross border supply, 2) consumption abroad, 3)
commercial presence, and 4) presence of natural persons. Cross-border supply refers to the exchange
of services across borders with both producer and consumer not moving. Consumption abroad
describes the case when foreigners enjoy the services of a domestic provider. Commercial presence is
the case when foreign firms offer services in the consumer's country of residence. Presence of natural
persons pertains to the entry of expatriates or foreign individuals working in the consumer's country
of residence.
The most favored nation (MFN) principle requires members of the GATS to treat all the
other signatories equally. The Philippines has indefinitely exempted commercial banking and
investment houses in the MFN, specifying that these are "subject to a reciprocity test." This means
that the treatment of foreign commercial banks and investment houses will depend on how the other
country treats Filipino commercial banks and investment houses.
The national treatment principle requires member signatories to level the playing field
between a foreign service provider and a domestic one. In general, the Philippines has no limitations
on national treatment in all modes of supply except for the presence of natural persons. In most
financial sub-sectors involved (e.g., commercial banking, financial advisory services, factoring,
financial leasing, foreign exchange transactions, credit card services, and insurance), the Philippines
has asserted that "each employed non-Filipino citizen shall have at least two (2) Filipino
understudies" (WTO, 1998).
Market access limitations remain significant. As applied to all financial sub-sectors, the
Philippines declared that "the appropriate regulatory authority in the Philippines shall determine
whether public interest and economic conditions justify authorization for the establishment of
commercial presence or expansion of existing operations in banking and other financial services in
the Philippines." In banking, a provision states that at all times, 70 percent of the resources or
assets of the Philippine banking system is held by domestic banks which are at least majority-owned
by Filipinos.
The restrictions on commercial presence of foreign intermediaries are stipulated in domestic

laws. The General Banking Act (GBA) of the Philippines states that Filipino citizens must own at
least 70 percent of the voting stock of expanded commercial, regular commercial, and thrift banks.
Rural banks must be fully owned and held directly or indirectly by Filipino citizens. Even foreign
3
banks, whose entry has once again been allowed in 1994 after a period of 45 years, can only own up
to 60 percent of voting stock of their locally incorporated subsidiary.
Currently, there is a move in Congress to raise the maximum share of foreigners from 30
percent to 40 percent. However, this proposal is a modest improvement since the current GBA
allows for as much as 40 percent equity, as long as it is ordered by the President of the Philippines.
The BSP has supported a 100 percent equity participation for foreigners as long as 70 percent of
voting stocks remain in the hands of Filipinos.
In life and non-life insurance and investment houses, the Philippines has committed to raise
the allowed voting stock share of new or existing domestic companies to 51 per cent. Since there are
already existing fully or majority foreign-owned companies, the commitment only applies to new
companies or old ones that are Filipino-owned or controlled.
Foreign non-life insurance companies are allowed to enter, but there is a moratorium on
foreign participation in the life insurance sector. Another protection for domestic life insurance
companies is the limitation to the market access of natural persons. In particular: "Qualified non-
Filipino citizens may be employed for technical positions only within the first five (5) years
operation of the enterprise, their stay not to exceed five (5) years upon entry" (WTO, 1998).
All told, the different types of financial services are being opened up, though accompanied by
a number of conditions or limitations. The barriers to entry are still considerable, but one thing is
crystal clear: The process of liberalizing financial services and committing domestic financial services
to international ruleswhile it may encounter twists and turnsis irreversible. We have no choice
but take the bull by the horns.
II. Overview of the Financial Sector
The financial system is made up of the banks (universal, commercial, thrift and rural) and
the non-bank financial intermediaries (securities brokers and dealers, finance companies, investment
4
houses, mutual funds, common trust funds). Although part of the non-bank financial
intermediaries, the insurance system (pension funds, social security funds, and insurance companies)
gets a separate treatment in this paper.
The distinction between the banks and the non-bank financial intermediaries is that the
banks accept traditional deposits, which is not the case for the non-bank intermediaries. The banks
likewise are bigger than the non-bank financial intermediaries in terms of asset and outstanding loan
size. As of 1998, the assets of banks made up 82 percent of the total assets of the financial system.
As of 1996, their loan portfolio also made up 92 percent of the total loan portfolio of the financial
system.
The assets of the financial system have been growing steadily in level terms in this decade.
The rates, however, have been less robust especially since 1998. Preliminary figures show that from
a 1997 rate of 2.8 percent, asset growth dropped to 1.5 percent, the speed of growth before 1991.
This is not surprising since most banks suffered a drop in income, therefore reducing the potential of
4
In varying degrees, banks likewise perform some functions of the non-bank financial intermediaries.
4
retained earnings as a source of funds. Lower incomes of corporate investors whose firms were
initially affected by the exchange rate and later by weak demand also contributed to the drop in
assets.
Difficulties in building up capital accounts are compounded by the capital build-up program
of the BSP. The BSP has programmed increases in the minimum capital requirements of banks over
a three-year period. For expanded commercial banks, capital accounts must reach P 4.95 billion by
end-1999 and P 5.4 billion by end-2000. For regular commercial banks, the minimum capital
requirements are P 2.4 billion by end-1999 and P 2.8 billion by end-2000. Thrift and rural banks
also have targets that vary according to the location of the bank. To achieve these targets, banks
have no choice but to undertake mergers and acquisitions or risk a downgrade in their license.
Types of Banks
The Philippine banks are divided into three categories, namely 1) the commercial banks
(including the universal banks), 2) thrift banks, and 3) rural banks.
Within the banking system, commercial banks are the most dominant in terms of assets,
loans, and deposits. As of 1998, they held 74 percent of the total assets of the financial system.
They also accounted for 82 percent of the total loan portfolio financial system and 88 percent of the
total deposits in the financial system in 1996.
In the early 1980s, the universal banking model became dominant in the banking system.
Fragmented institutions with specialization (or the so-called Anglo-American model) took the
backseat. Commercial banks merged with their financing companies and investment houses to form
5
expanded commercial banks (EKBs) . (Commercial banks focus their operations on debt finance,
while the investment houses specialize in equity investments.)
Universal banking was in fact an IMF (International Monetary Fund) recommendation. It

was meant to address the problem of segmentation and competition in the banking system. There
was segmentation in the sense that commercial banks were seen as serving larger and more
established commercial, industrial and service enterprises while smaller intermediaries catered to
small and medium enterprises. It was expected that universal banks would become more efficient
since they could take advantage of economies of scope. Likewise, the emergence universal banks
sought to increase competition since they could engage in a wide range of financial activities.
Expanded commercial banks differ with regular commercial banks in that they exercise the
powers of an investment house, invest in the equity of non-allied undertakings, and own a majority
or 100 percent of the equity of a financial intermediary other than a commercial bank. As bank
spreads are expected to decline with the liberalization of the financial sector, more and more banks
will be forced to rely less on interest income. This has worked to the benefit of expanded
commercial banks, which have the power as well as the capability to handle more functions.
5
In the US, commercial banks and investment banks are separate entities. In mainland Europe, investment banks
are part of bigger financial institutions that combine debt and investment financing (thus similar to the Philippine
universal banks). In the Philippines, purely investment houses are classified as non-bank financial intermediaries.
5
Two other sub-types of banks fall under the commercial bank category. These are the
foreign banks and the specialized government banks.
Foreign banks have been allowed since 1971 to hold equity in domestic banks. Foreign
banks have also operated in the country, although before the legislation of the liberalization of
foreign bank entry, only four foreign banks had off-shore branches in the country. It was only after
the enactment of bank liberalization in 1994 that the number and the scope of foreign banks
expanded, though still limited. At present, foreign banks can own a full-service branch, purchase
equity in a domestic bank, and establish a joint venture between foreign and local groups.
Specialized government banks used to have a separate category in the BSP records. However,
with the gradual privatization of government shares, they have been subsumed under commercial
banks. Government-owned banks are the Land Bank of the Philippines and the Development Bank
of the Philippines, which perform the vital function of providing agricultural and long-term credit.
Government stake in the Philippine National Bank has been gradually reduced. In 2000, the
remaining 45.5 percent stake of the government will be auctioned off.
Thrift banks are the second group of banks in the system. Included in this second category
of banks are savings and mortgage banks, private development banks, and savings and loan
associations. They depend more on deposits than borrowed funds. Hence, thrift banks have lower
6
leverage ratios and higher capital-to-loans ratios than commercial banks . Still, difficulties in
meeting both capital and profitability requirements make them very vulnerable to being taken over
by big commercial banks. Some of the thrift banks have resolved to merge with their parent firms,
while others risk being downgraded to rural bank status.
An advantage of thrift banks is their exemption from the 20 percent gross receipts tax (GRT)
imposed on commercial banks. However, establishing thrift banks has also been used by parent
commercial banks to avoid the GRT.
Rural banks make up the third group, the smallest group. They lend to medium-size farm
and non-farm enterprises. In the past, they were conduits of government in their credit programs
for the agricultural sector. This strategy served a development objective of mobilizing credit to serve
rural areas. Hence, the rural banks used mainly borrowed funds for credit, in the process making the
mobilization of deposits a secondary function.
With the withdrawal of such subsidies, deposits have played a more dominant role in the
balance sheet of the rural banks. In 1987, deposits were just 47 percent of total funds of rural banks
while borrowing took up 29 percent. In 1996, borrowings consisted only of 12 percent of the total
funds while deposits went up to 64 percent.
Non-bank financial intermediaries
Non-bank financial intermediaries account for less than 10 percent of the total assets of the
financial system, even if their number of entities is much bigger than that of the banking system.
Their activities range from lease financing (finance companies), short-term retail credit (pawnshops
and lending investors), investment in equities of small and medium scale enterprises (venture capital
corporations), to trading and sale of securities (investment houses/companies, securities
6
Gaylicon, Christine A., Mergers making thrift banks tribe smaller, Philippine Daily Inquirer, June 14, 1999.
6
dealers/brokers, fund managers). We can likewise include private foundations (as well as non-
government organization donor agencies) as part of the non-bank financial intermediaries, though
this has not yet been officially done.
As mentioned earlier, the non-bank financial intermediaries are not authorized to accept
deposits. However, some establishments under this category are allowed by the BSP to borrow
substantial amounts from the public through the issuance of debt instruments and the like. Thus,
some non-banks have quasi-banking functions. Most of them, however, rely on their capital plus
borrowings to fund their activities.
With the trend towards universal banking, the situation of non-bank financial intermediaries
seems to be threatened. However, Okudas findings (1997 as cited in Intal and Llanto, 1998)
suggest that specialized institutions will continue to coexist with universal banks since only
economies of scale and not economies of scope would be the more significant factor in banking. In
a similar vein, Lamberte and Llanto (1995) found that non-bank financial intermediaries (in
particular, pawnshops) service small loans and incur higher transactions costs per peso lent than do
banks. Notwithstanding the higher transaction costs of non-bank intermediaries, Lamberte and
Llanto note their niche. That is: The growth of the non-bank financial institutions is due to the
failure of the banking institutions to respond to the credit demand of particular types of clientele
and conversely, their ability to tailor fit the financial instruments to the needs of these clientele.
Nevertheless, given the asymmetric information (most pronounced in developing countries

like the Philippines), it is virtually impossible for banking institutions to service the small borrowers.
Just like the rural moneylender, these non-banks are better able to distinguish the aggregate risks
(experienced by everyone in the area) from the idiosyncratic shocks (experienced only by the
borrower) than the big banks. Being small, they are also not hampered by the additional cost of
providing credit, which becomes huge when a large amount of funds is shared by many borrowers.
Until information about borrowers becomes accessible and cheap, non-bank institutions need to be
nurtured as an alternative to banks.
We should not underestimate the role of non-bank financial institutions. Their relevance
has been underscored even at the height of the Asian financial crisis. In times of great vulnerability
of banks resulting in tight allocation of credit, the non-bank financial institutions can be counted on
as a source of credit, especially for small- and medium-scale entrepreneurs.
And even during normal times, the non-bank financial intermediaries can provide
competition to the banks, thus contributing to the over-all competitiveness and efficiency of the
financial sector. An advantage of the non-bank financial institutions is that they are familiar with
and have developed close links with small and medium borrowers who have difficulty accessing the
larger banks.
All told, the strengthening of the non-bank financial institutions improves the financial
market by way of diversifying the risks in the financial sector, providing competition to the banks,
and catering to the needs of small borrowers.
7
Insurance and Pre-Need Industries
Likewise belonging to the category of non-bank financial intermediaries is the insurance

industry, the regulation of which falls under the Insurance Commission.
The insurance industry is divided into life and non-life insurance. Life insurance involves
longer-term contracts that attract peoples savings, thus contributing to the long-term funds of the
country. Unlike life insurance that mobilizes long-term savings, non-life insurance is involved in
short-term contracts that are periodically renewed. Non-life insurance is also geared towards
spreading risk across groups of people.
In a sense, the government-controlled Social Security System (SSS) and the Government
Service Insurance System (GSIS) are part of the insurance industry. It goes without saying that the
SSS and the GSIS have a much bigger asset base than private insurers. The orientation and functions
of SSS and GSIS nevertheless are not confined to life insurance; they likewise carry out pre-need
functions. These institutions provide immediate benefits to members such as salary loans, calamity
loans, etc.
The pre-need (including private pension) business is a fast-growing sector. The pre-need
sector, a fast-growing sector, is an important component of social insurance. This sector provides
benefits relating to education, pension fund accumulation, interment, and death-related services.
The pension fund services do complement the services offered by the SSS and GSIS; the private
pension funds offer occupational and personal retirement schemes, which can offer better returns
than what the GSIS or SSS can yield.
The pre-need sector is self-regulating, thus enjoying less regulation as compared to the
conventional insurance companies. They also have lower taxes, giving them an advantage over
insurance groups.
Within the pre-need category, the mutual fund industry is of particular interest. We can
expect that mutual funds will grow exponentially in the coming years. (The necessary condition is
for the country to meet and sustain the growth targets.)
Mutual funds have become an attractive source of investments for small and medium savers
or for those with disposable income. The advantages include the following: a) fund diversification,
b) spread of risk among different investors and thus less risky than making individual stock
purchases, c) access to expert advice, and d) time saved in monitoring portfolio performance.
Unfortunately, the growth of mutual funds in the Philippines declined at the onset of the
slowdown in the real sector of the economy and further decelerated at the height of the recent
financial crisis.
The great potential of the mutual funds industry is demonstrated by its rapid growth in
other countries in the region, with Singapore, Korea, and Thailand being cited as examples. In the
United States, mutual funds constitute the largest part of the financial sector,7 followed by insurance
and commercial banking in that order. In the Philippines, the mutual funds industry still have a
long way to go before it could catch up with banks in terms of assets and revenues.
7
Mutual funds and pension funds are distinct categories in the US.
8
What can serve as a big boost to the mutual funds industry in the Philippines is the passage
of a pending bill titled Individual Retirement Account. The objective of the bill is to encourage
more savings, especially to prepare for retirement.
III. Input-Output of the Financial Sector
The input-output data provide analysts the forward and backward linkages of the financial
sector. The 1990 tables8 would show that the financial sector had the largest forward linkage in
terms of value with the wholesale and retail trade sector. Banks, non-banks, and insurance
companies transferred more than P 7 billion to the wholesale and retail trade sector. Second would
be government services, which received P 4 billion.
Manufacturing was only third, obtaining P 3.4 billion from the financial sector. A
breakdown of the manufacturing sector would reveal that finance contributed more input value to
food than to other commodities. A far second and third were the wood and wood products and the
chemical and chemical products, respectively. The banks dominated the non-banks and insurance
companies as the input source of manufacturing firms.
Agriculture, on the other hand, was a far seventh, getting P 1 billion from the financial
sector. Under agriculture, the largest recipient of output was the fishery group. with non-bank
financial industries dominating both banks and insurance companies as input source. Banks were
more inclined to provide financial input to banana, sugar, and corn production than to palay,
coconut/copra, and mining production. On the other hand, non-bank intermediaries dominated
livestock and poultry, while insurance companies understandably gave relatively higher service inputs
to high-risk products like palay, coconut/crop, and most of mining.
These data on forward linkages underscore the bias of the financial sector for short-term
lending vis--vis medium- and long-term lending. Trade, having the biggest forward linkage, is
dependent on credit that is used mostly for working capital and used least for machinery and
infrastructure.
Inputs for government services are coursed through treasury bills and other government
securities that are short-term in nature. Governments poor tax collection and frequent resort to
pump-priming programs have apparently contributed to the short-term nature of lending, crowding
out the private sector from sources of loanable funds.
On the other hand, the large part of credit that goes to manufacturing (placing a far third) is
used to pay for production factors.
The above data bespeak the unstable environment that the Philippine economy has been
accustomed to. Banks are reluctant to lend long-term due to the uncertainty about the economic
and political situation. Long-term lending is often undertaken by the government through the
Development Bank of the Philippines. According to Montes and Ravalo (1995), the private sector
does contribute to long-term lending. However, this mainly takes the form of roll-overs of short-
8
1990 data are the latest available, but it may be to safe to assume that findings based on 1990 data are relevant up
to now.
9
term credit. Again, because of uncertainty or instability, banks lend short-term, then extend the
term periodically, depending on factors such as the macroeconomic situation.
To go back to the 1990 input-output tables, backward linkages of the financial sector for
that period were relatively weak, with intermediate inputs comprising only about 27 percent of total
inputs. There was also a decline in the percentage of intermediate outputs from 1988 to 1990.
Among the sources of these intermediate inputs, private services were on top of the list. In 1990,
private services gave P 4 billion worth of goods and services to the financial sector. The transport,
storage, and communication sector was second, and manufacturing came third.
IV. Banking Issues and Reforms
Banks as well as non-banks have gone through extensive reforms, especially in the 1990s. To
cite some:
Selective credit policies were lifted, leading to market-determined interest rates.

Bank branching and entry were partially liberalized, an important historical
9
development nonetheless.
Foreign exchange markets were freed from substantial Central Bank control.
While technology may have facilitated trade in financial services, policy has also played an
important role. When the foreign exchange rate market was deregulated in 1992, many market
access restrictions on the cross border supply and consumption abroad of financial services were
relaxed. Permitting exporters to retain 100 per cent of their export proceeds and the free use of these
receipts and the abolition of provision against deposits abroad by residents allowed residents to freely
engage in deposit transactions with foreign financial institutions.
Likewise, opening access to foreign currency deposit unit (FCDU) loans plus the relaxation
of regulations on the foreign exchange position of commercial banks led to brisk foreign borrowing
by local banks. This contributed to the 1993-1996 growth cycle in the Philippines. Unfortunately,
it also had a serious downside: Local banks that offered unhedged loans to domestic firms became
vulnerable to the sudden peso devaluation. The currency crisis not only emphasized the dangers of
globalization but also the need for a concerted effort from GATS members to discipline volatile and,
at times, misinformed movements of capital.
Intal and Llanto (1998) discuss the positive results of these reforms. The financial system
has deepened considerably although still not comparable to that of Indonesia, Thailand, Taiwan, or
even India. There is also "a secular reduction in the reliance of financial institutions for sources of
funds on borrowing, and their corresponding greater emphasis on deposits." Assets of financial
institutions rose while the number of offices increased by more than 60 percent. Likewise, there has
been some competition in the sense that banks offer more attractive deposit products to lure
consumers.
9
The liberalization reform in the 1990s, though partial, was a dramatic shift from the restrictive policy in the early
1980s (e.g., there was a moratorium in bank entry in 1980).
10
Liberalization, however, cannot account for all these developments. A stable economic and
10
political environment in the 1990s, in contrast to the turbulent 1980s, also contributed to the
growth of the financial sector.
It must likewise be said that the liberalization measures have not addressed some perennial
problems that plague the banking sector. For example, the removal of constraints on financial
transactions through liberalization was widely expected by policymakers to address the problem of
low, even negative, real deposit rates offered by banks. Yet, deposit rates have on the whole
remained below the inflation rate.
To be sure, some have argued that bank liberalization in the Philippines is partial, thus the
need to liberalize further. Others, however, claim that liberalization has gone too far or too fast. To
put things in perspective, bank entry liberalization during the Ramos administration was half-baked
in the sense that it allowed only a handful of foreign banks to set up a limited number of branches in
the county. Such restriction may have impeded the goal of having more competition in the banking
system.
The focus on liberalization during the Ramos time, unfortunately, was not accompanied by
decisive steps to strengthen regulatory institutions. Competition policy, after all, requires
institutions that are capable of setting the rules and applying the rules fairly.
Clearly, liberalization of the financial services has to proceed in conjunction with institution
building. It can even be said that sound, judicious regulation is a healthy constraint to full
liberalization. (For example, the standard regulation of prescribing the minimum ratio for risk-based
capital is already a barrier to entry. Such minimum basic entry standards are necessary for quality
control, as it were.)
In this connection, the Orient Bank fiasco serves as a concrete lesson. The BSP encouraged
new domestic banks to operate, but as the Orient Bank tragedy shows, not all the banks are worth
giving a license to operate. This is a failure of regulation, and the Gabriel Singson regime at the BSP
is culpable for tolerating the operations of a dubious entity that exploited the liberalization space.
To paraphrase Ernest Leung, president of the Philippine Development Insurance Corporation
(PDIC), the success of liberalizing bank entry depends on a market reinforced by information.
Other small banksnot as notorious as Orient Bankhave also been shaken by the
financial crisis. The crisis also exposed the weaknesses of medium-size banks, which do not have a
huge war chest, so to speak, to cover the rise in non-performing loans.
In this context, consolidating or merging banks towards meeting risk-based capital adequacy
ratios and loan/loss provisioning together with strengthening better-informed regulation and
supervision would compose some of the key elements in the next wave of bank reforms. On
regulatory issues, promoting transparency and developing systems that enhance surveillance,
discipline and compliance are on top of the reform agenda.
10
The qualification to this is the financial turbulence resulting from the regional crisis that exploded in 1997.
11
Financial Intermediation Costs
Another critical reform area is the development of a policy environment conducive to

increasing the effective interest rate for depositors. Computing the real interest rates based on the
deposit rates of savings and time deposits and the inflation rate from 1990 to 1997, we find that real
rates for savings deposits were more often negative. On the other hand, real rates for time deposit
were positive (except for the crisis year of 1991).
The year 1997 seemed to offer hope with a record-setting 4.011 percent real deposit rate.
However, inflation rose to double-digit levels in 1998 when the peso devalued by 40 percent,
lowering the real rates once more. In 1999, the determined drive of government to bring down
interest rates has resulted in the reduction of real rates even as the banks continue to enjoy a wide
spread in their deposit and lending rates.
Government intervention has been blamed for the low deposit rates of banks. While it is
true that credit subsidies via the old Central Banks rediscounting window had long been stopped
and interest rates had long been deregulated, several factors have served as effective constraints to the
intended goals of liberalization. Restraints on financial transactions impose a cost on intermediation,
lowering the interest income of banks. Deposit rates go down and lending rates go up whenever
these costs are passed on to depositors and borrowers.
One policy-induced constraint is the reserve requirement imposed by the BSP. Reserve
requirements, often considered as implicit taxes on intermediation, have a dual purpose. On the one
hand, it assures depositors of the liquidity of their savings. The government requires banks to hold a
certain fraction of the deposits in cash. On the other hand, it is a convenient monetary policy tool.
Higher ratios withdraw cash from the system, lowering the money supply. On many occasions in
the not-too-distant past, it is for the latter purpose that reserve requirements were set high.
Reserve requirements would go above the 20 percent mark, especially during crisis
11
situations. When the exchange rate significantly declines or when the inflation rate rises, the
standard BSP prescription is to increase interest rates also by way of imposing higher reserve
requirements. This, however, worsens the situation as investments are further dampened and
aggregate demand is contracted. High interest rates also attract hot money from abroad and thus
contribute to overvaluing the exchange rate. All this has an adverse effect on the economy,
specifically in meeting both growth and poverty reduction objectives. While depositors may benefit
from higher interest rates, the tradeoff they face is the general decline in living standards arising from
the economic slowdown or contraction.
By the end of the first quarter of 1999, reserve requirements were scaled down to 14 percent.
The BSP made the cut on the part of reserve requirements that enjoy market interest ratesthe so-
called liquidity reserves. The statutory reserves, the other part of the reserve requirements, account
for the 10 percent of the total 14 percent of reserve requirements. No cut has been made on the
statutory reserves, which yield only as much as four percent interest rate.
11
In the early 1990s, the reserve requirement ratio peaked at 25 percent. See Lim, Joseph Y. Financial
Intermediation and Monopoly Practices in the Banking System, Issues and Letters, November 1992.
12
Some have remarked that the BSPs loosening of monetary policy only came after the
successful initiative of the Department of Finance to significantly bring down interest rates through
Treasury operations. In the past, the BSP has been partial towards a tighter monetary policy.
Different sectors (e.g., business, academe, and NGO advocates) have welcomed the BSPs relaxation
of monetary policy. This is expected to release P 11 billion into the system, giving banks more
12
freedom to invest their funds.
Another controversial issue is the explicit tax on financial intermediation, a gross receipts tax
(GRT) of five percent imposed on the banks interest income and capital gains.13 Just like reserve
requirements, they eat into bank spreads. Vos (1997) nevertheless argues that the GRT could not be
the culprit behind the huge spreads between borrowing and lending rates, noting that bank spreads
increased during the 1980s, even as the GRT remained steady at five percent during that period.
Still and all, the GRT raises intermediation costs. Also adding to the intermediation costs is the 20
percent withholding tax on interest income.
In this connection, there has been resounding support from various sectors (not only bankers
but academics and some NGOs as well) to scrap the GRT. Lim (1992) also recommended the
14
lowering of the withholding tax on interest income.
Just recently, Finance Secretary Edgardo Espiritu announced the Department of Finances
plan to remove the GRT and the deferred value-added tax but replace these with a so-called financial
institution tax equivalent to 10 percent tax on gross profit.15 The introduction of another kind of tax
to replace the GRT and deferred value-added tax may not result in lowering the banks
intermediation costs.
A more contentious issue is the mandatory credit allocation policies that are imposed on
banking institutions. Currently, there are three regulations on loan portfolio: 1) the deposit
retention scheme, 2) the agri/agra law, and 3) the mandatory credit to small-scale enterprises.
The deposit retention scheme requires banking institutions to invest 75 percent of the total
deposits net of required reserve in the region where it is located. The objective of this scheme is to
use the savings of the depositors in a particular region for the development of their own region. In
light of liberalization, the definition of regions has been relaxed, with the country now divided into
three regions for this purpose.
The agri/agra law requires all banking institutions to set aside 25 percent of their net
incremental loanable funds for agricultural lending. The 10 percent is allocated for agrarian reform
beneficiaries and the remaining 15 percent is set aside for general agricultural lending.
The mandatory credit to small scale enterprises is mandated by the Magna Carta for Small
Enterprises, requiring all lending institutions to lend at least 10 percent of their total loan portfolio
to small enterprises whose total assets amount to five million pesos and below.
12
Dumlao, Doris C., Banks laud BSP measures, Philippine Daily Inquirer, April 9, 1999.
13
The tax applies to bank instruments with maturities of less than two years.
14
To quote Lim (1992): The main fear here is that the government will lose a significant amount of revenues.
Compensating policies for better tax collection should accompany this policy.
15
See Dumlao, Doris C., Government readies new tax plan on capital of foreign banks, Philippine Daily Inquirer,
September 9, 1999.
13
Banks contend that these policies are constraining, leading to losses that are eventually passed
on to depositors and borrowers.
However, in reality, the BSP has allowed them to circumvent the spirit of the law by offering
alternatives like the purchase of treasury bills and the extension of loans to hospitals, educational
institutions, local governments (provided there is no national government guarantee), and socialized
housing.16 The P 5 billion Erap bonds likewise allowed the agri-agra funds to be used for subscribing
to the bonds, reportedly to be used for agricultural projects.
Despite the laxness of the interpretation, the BSP reported that the agri/agra loanable funds
had a deficiency of P 60 billion as of September 1998 due to under-compliance, largely by
commercial banks. As the regulator, the BSP complained that they do not have enough personnel to
monitor compliance and do the paper work relating to the agri-agra law. But as Adrian Cristobal
17
puts it , it is the BSPs responsibility, all the same, to apprise the authorities of shortcomings; it is
not its business to find ways to circumvent the law by sophistical means.
The circumvention of the agri-agra law illustrates how the constraint of mandatory credit is
hardly binding. The lack of capacity of small- and medium-scale enterprises (SMEs) as well as of the
agricultural sector to absorb loanable funds should not be used as a scapegoat for the low deposit and
high lending rates.
That said, it is still unrealistic for public policy to force commercial banks to invest in areas
where they least desire. SMEs and most agricultural units avail themselves of small loans that are
costly for big banks to service. According to Lamberte and Llanto (1995), banks do not seem to
have a problem with the 15 percent requirement for general agricultural lending because they are
able to comply by lending to huge agricultural companies (e.g., Del Monte). In other words, the
size of the loan andwe hasten to addthe creditworthiness of the borrower are important factors.
In the case of agrarian reform, its slow if not haphazard implementation in combination with
the uncertainty in the resolution of property rights is a disincentive to bank lending. The agri/agra
law is meant to complement the efforts on agrarian reform. However, as long as uncertainties in the
ownership of distributed land and the provision of other support services (e.g. infrastructure,
management skills) exist, banks will remain reluctant to lend to farmers. A clearer program and
more orderly implementation of agrarian reform that will not only distribute land but also increase
farmers productivity must first be implemented before the credit program can take off.
Creditworthiness depends greatly on the available information. And the painful fact is that
the relationship of banks and SMEs is constrained by information problems. Since credit ratings are
not available and may be infeasible for SMEs, banks have a difficulty recognizing the good borrower
from the bad. This could lead to losses that will have to be subsidized by either the depositors or the
good borrowers.
In this context, SMEs are best serviced by smaller units like thrift and rural banks as well as
by the appropriate non-bank finance intermediaries. These institutions (which have closer links with
16
Torrijos, Elena R, Agri-agra loans fall short of legal requirements, Philippine Daily Inquirer, April 16, 1999.
17
Cristobal, Adrian, Small business and big banks, Philippine Daily Inquirer, May 25, 1999.
14
and hence have a better feel of the small borrowers) enjoy the structures, mechanisms and
arrangements that enable them to minimize the cost involved in lending to many small borrowers.
Bank Oligopoly
A more politically sensitive reason that explains the huge bank spreads in the country is the
oligopolist structure of the financial sector. The 1996 Financial Fact Book shows that the top five
commercial banks accounted for as much as 32.72 percent of the resources of the whole financial
system, 35.6 percent of the banking system, and 39.88 percent of the commercial bank group. The
top five banks also held 40.94 percent of the deposits in the banking sector and 46.44 percent in the
commercial bank category. The money market bears the same oligopolistic profile. As cited by Vos
(1997), Yap et. al. (1990) found that four large banks directly accounted for 13.3 percent of the
total deposit substitutes of all financial institutions with quasi-banking licenses, while their affiliates
accounted for 34.7 percent.
With fewer banks in control of most of the assets and deposits of the financial system, we can
expect an oligopolistic price to emerge. The big banks can influence spreads by lowering the rates by
which they borrow (deposit rates) and increasing the rates by which they lend (lending rates). The
relationship between concentration and bank spreads has been widely tested by researchers.
Regressions done by Lamberte and Llanto (1995) and Vos (1997) on the Herfindahl concentration
index vis--vis the bank spread between average deposit and lending rates show that increasing
banking concentration has led to larger bank spreads. (Even without the benefit of the regression,
one can proceed from the proposition that the high bank concentration impedes bank competition,
and, to quote Lim (1992), one surely can attribute the rise in bank margins partly to this.)
It is possible that the aim of increasing competition in the banking system may contradict
with some regulation objectives. While competition supposedly encourages the entry of small but
many banks, regulation may tend to encourage the development of big and strong institutions. To
illustrate, towards encouraging more entrants to the financial system, minimum capital requirements
could be lowered. The tradeoff is that this would entail risk since undercapitalized banks are
vulnerable to any crisis. This tension is most obvious in the Philippines where banks serve a small
domestic market.
Nevertheless, the meaning of liberalization should not be misconstrued as having free entry
of banks. In the first place, not all banks are sound and reputable. Regulation must be selective in
the granting of licenses, using criteria that are rigorous and that cannot be manipulated (among
which are track record, risk-based capital adequacy, risk-management systems, etc.).
The mix of liberalization and regulation is not a game of numbers. Better regulation may
entail mergers and consolidations to meet higher capital requirements based on the level of risk that
the banks can tolerate. This does not necessarily lead to a dilution of competition. What is
important is to make the market contestable by making it relatively easy for corporations to enter or
leave the banking industry. Recall the classic argument of Baumol: It does not matter how many
firms are competing in the industry so long as the barriers to entry are not difficult for new players to
enter and that the threat of entry itself would force incumbent firms to become competitive.
Along this line, an effective way to undercut oligopolistic pricing without wavering on
regulation is to further liberalize the entry of foreign banks. At present, foreign banks can only have
15
equity participation of up to 30 percent of domestic banks and 60 percent of their locally

incorporated subsidiaries. An increase in the equity share of foreign banks will diversify control in
the local banks and will likewise strengthen checks on insider abuses.
Congress is now deliberating on the amendment of the General Banking Act (GBA). One
proposed amendment is to increase foreign participation even up to 100 percent ownership as long
as their voting equity is limited to 70 percent.
As expected, there is opposition from domestic banks, contending that foreign banks will
overwhelm Filipino banks since the former, having the capability to source and invest funds over a
wide range of countries, can mix risk and returns better. Recently, the new BSP leadership has
expressed support for 100 percent foreign ownership of local banks, but such support hinges on
vague conditions like imposing a cap on how long a foreign investor can hold on to his bank
18
equity. Such a cap is still a barrier to entry and may ultimately undermine the strategy of opening
up the markets to foreign competition to break up domestic oligopolies.
It may seem that further liberalization is the solution to oligopolistic pricing. It is not that
simple, however. Vos (1997) argues that the increased concentration of the banking sector
following the financial reforms of 1980 is a typical result of ill-conceived and badly-timed
liberalization measures. Since liberalization was implemented at a time when the economy was in a
crisis, mergers and consolidations were encouraged by the Central Bank to strengthen the financial
system and bring back confidence. Thus, he recommends that financial liberalization, particularly
interest rate deregulation, must be implemented in a condition of macroeconomic stability.
It must be recognized, too, that other reforms prior to liberalization (or side by side with
liberalization) have to be met for the positive effects of foreign entry to take root. As Montes and
Ravalo (1995) said, a necessary condition for competition is the strengthening of the states ability,
through legal reform, to break down anticompetitive collusion and regulate insider use of resources.
They noted that after financial liberalization, the private bankers association has regulated deposit
rates, thus helping to prop up weak banks, while compelling the government to pay market rates for
its domestic borrowing.
The need to break down anticompetitive collusion all the more becomes urgent in light of
the recent trend to merge or consolidate the commercial and universal banks. The likely scenario is
for literally less than a handful to emerge dominant in the banking system. As discussed earlier, a
reduced number of competitors does not in itself lead to a weakening of competition (the market
contestability argument). Nevertheless, as suggested by Montes and Ravalo, it is absolutely necessary
to put in place anti-trust legislation.
It also has to be borne in mind that regulatory capture characterizes the relationship between
the regulator (BSP) and the regulated (private banks) in the Philippines. Hutchcroft (1998) has
argued that patrimonial features persist in the Philippine banking industry. The big private
bankers oftentimes have enjoyed cozy if not a personal relationship with the central bank chief
executive.
18
Panes, Arvin P., BSP wants 100% foreign ownership foir local banks, The Philippine Post, August 25, 1999.
16
It has been argued that banking laws, rules, and regulations are sufficient to detect bank
failure and discipline erring banks. Lim (1992), for example, said that the General Banking
Actgives the CB [now BSP] great powers in the supervision of banks and in discouraging shady
transactions. The bigger problem then lies in the weakness of the central bank leadership to apply
the vast powers it wields.
This brings to fore the need to make the regulators more accountable. The provision in the
New Central Bank Act to subject the BSP Governor to the confirmation of the Commission on
Appointments (CA) intends to strengthen the accountability process. This provision, however, has
been willfully ignored, the argument being the unconstitutionality of the said provision. The
Supreme Court has yet to rule with definitiveness on the interpretation that the said provision in the
19
law contradicts the Constitution.
Better Institutions, Better Bank Regulation
The point that the BSP already wields great powers is not an excuse to be complacent in
exerting greater efforts to strengthen regulatory and supervisory institutions.
Amidst a gradual but consistent move towards liberalization of the banking industry, a
consensus has likewise developed, as part of lessons drawn from the Asian financial crisis, that the
regulatory infrastructure must be developed along with the freeing of markets. As the crisis starkly
demonstrated, poor regulation allowed banks to incur foreign liabilities without acquiring the
equivalent amount of foreign assets. With a negative net foreign asset position, the banks with large
exposures to short-term foreign borrowing, became very vulnerable to the sudden drop in the value
of the peso.
To be sure, the private sector got the message that foreign borrowing was cheap, with the
signal emanating from the BSPs policy preference to maintain relatively high domestic interest rates
and stabilizing the peso through a peg.
In other words, the BSP committed two mistakes: First, its policies encouraged the private
sector to incur unhedged foreign borrowing. Second, its bank surveillance fell short of undertaking
prompt corrective action to tackle the problem of risk assets.
Regulation of financial institutions is tricky, thus, requiring creative approaches. The

industry is characterized by asymmetric information and moral hazard between the regulator (BSP)
and the financial institution, between the institution and the depositors, and between the institution
and the borrowers.
As the lender of last resort, the BSPs policy bias (domestic interest rates higher than the
interest rates of the rest of the world which stabilized but overvalued the exchange rate) unwittingly
gave the banks the incentive to undertake what in the end turned out to be risky, imprudent
activities. What worsened the problem was the BSP Governors handling of imprudent banks with
kid gloves.
19
See the position paper of Action for Economic Reforms: Bordon, Ann et al., An Open Letter to the Honorable
Members of the Commission on Appointments, 22 June 1999.
17
The Orient Bank case comes to mind. The moral hazard is this: When the future state turns
out to be favorable, the bank that took the risk earns a neat profit. However, when the future state
turns out to be bad, the same bank is not punished with closure. (Fortunately, the PDIC and some
articulate members of the Monetary Board pressed for the closure of Orient Bank and the filing of
charges against its owners.)
Arguably, the temptation for BSP to bail out insolvent banks is based on the fear that a bank
closure will send shock waves throughout the financial system and the economy. The assumption
here is that a bank failure (even that of a bad onebank), especially at a time of crisis, can result in a
financial meltdown. The bailout, however, exacts a heavy toll on the taxpayers. Moreover, it
reinforces the moral hazard problem. It is thus essential for the BSP to have the capability to
distinguish between good, prudent banks on the one hand and bad, reckless banks on the other
hand. More, the BSP and has to muster the political will to punish erring banks.
To deter bank failure, the BSP periodically increases the minimum capital requirements of
banks. Currently, minimum capital requirements are based on functional lines. Universal banks
have the highest requirements, while rural banks have the lowest. To follow the Basle standards,
Gochoco-Bautista (1998) has pointed out that capital requirements should be based on risk. The
more risk the bank is exposed to, the higher the minimum capital requirement, regardless of bank
categorization (universal, commercial, thrift, or rural).
Unfortunately, the BSP still lacks the capacity to examine risk management of banks. This is
compounded by tricky accounting rules that prevent examiners from obtaining full and accurate
information. Undoubtedly, accounting rules and methods have to be changed towards making them
more rigorous and transparent. At the same time, auditors should be made more accountable for the
decisions and reports they make.
Another problem though is that even if regulators would have shown capacity to enforce the
20
international standards (i.e., the Basle standards), such standards, according to The Economist, may
not be good enough. If the government regulators rely on private credit-rating agencies measures of
risk, they may have to take on the additional task of regulating these agencies since demand for
favorable ratings is likely to elicit a supply. If on the other hand government regulators assume the
function of examining risk management, they would face a very formidable challenge, for banks are
actively engaged in regulatory arbitrage or in repackaging their risks so as to evade capital
requirements.
Aside from increasing minimum capital requirements, the BSP has repeatedly tightened the
rules on loans to DOSRI (depositors, officers, stockholders, and their related interests). In the
Philippines, tycoons establish banks to principally have an easy source of capital for their other
businesses. In some cases involving unscrupulous bankers, this presents a conflict of interest since
funds are mainly allocated to the interests of DOSRIs and not to the project with the highest returns
and lowest risks. Moreover, this narrows the bank exposure or makes banks dependent on selected
interests, a violation of the principle of diversification.
20
Better than Basle, The Economist, June 19, 1999, p. 88.
18
The General Banking Act (GBA) limits DOSRI loans to an amount equivalent to their
respective unencumbered deposits and book value of their paid-in capital contribution in the bank.
Despite this and the examination and supervisory powers provided by banking laws, the high
incidence of DOSRI loans continues to be the principal cause of rural and thrift bank failures in
recent years (a total of 121 banks closed between 1990 and 1998). The failure of Orient Bank, a
commercial bank, was a result of gross violation of DOSRI loan regulation.
Getting away with the violation of DOSRI rules can be attributed either to the failure of
supervisors to detect DOSRI loan violations or the failure to take action if the supervisors do detect
the discrepancies. Insider abuses must likewise be severely punished. Unfortunately, hardly has
there been a successful prosecution of bank owners, and their cohorts, including the executives and
21
auditors.
Without doubt, the lack of information or the asymmetry of information accounts for many
problems regarding bank supervision. Examiners may be able to ferret out undisclosed disturbing
information, but they are bound by confidentiality not to publicly divulge such information.
Hence, banks themselves must be compelled to disclose all relevant, including sensitive, information
that the public needs to know. Civil society likewise plays a critical role; the press for instance
should monitor the commercial banks and publish all relevant information, even comparing the
performance of the different commercial banks in terms of the rates of their different types of
deposits, their lending rates, etc.
In short, an important reform thrust is to have more transparency and information

disclosure. The banks themselves should take the lead in information disclosure through regular
disseminating of notices within bank premises and through the media. If banks would not do this
voluntarily, then this should be enforced through legislation.
In the proposed amendments to the General Banking Act, banks, quasi-banks, and trust
22
entities are required to submit financial statements to the BSP and have these statements published.
The financial statements should include their actual financial condition including the result of their
operations. But as Gochoco-Bautista (1998) points out, this may not give much information on
risk management systems within banks. It is easy to hide losses in financial statements, but even
more so, it is difficult to judge why such losses were the result of operations if not enough
information on risk management is given. Knowing what the result isthat there are losses from
certain operations, rather than why losses could have been expected to result, e.g. being able to
evaluate ex-ante whether the bank is taking on unnecessarily high risk or certain types of risk, will
not lead to pre-emptive and prompt corrective action on the part of the supervising authority.
Supervisors likewise have difficulty obtaining sensitive information from some uncooperative
banks. In this regard, it is necessary to amend the Bank Secrecy Act. This law has prevented
regulatory and supervisory bodies from extracting information on bank assets and liabilities, on
DOSRI loans, ceilings on borrowers, etc. With more information gathered in advance, regulators
and supervisors can immediately undertake action to deal with violation of prudential standards.
Among the violations committed by some banks are the practice of allowing DOSRI loans beyond
21
In this connection, there must be extra efforts to instill in auditors the legal, moral, and social responsibilities.
22
However, a section in the proposed amendments gives the BSP the authority to defer publication. This weakens
transparency.
19
the limit, the dressing up of accounts, and the maintenance of several financial books to suit their
objectives.
In short, amending the Bank Secrecy Act intends to serve the public good by making bank
information more transparent and making bank monitoring and surveillance more effective. It is
however conceded that public opinion supports those who oppose the amendment of the law. The
fear is that a relaxation of the Secrecy Law would impinge on citizens rights. A valid concern is that
sensitive information in the hands of the unscrupulous (e.g., corrupt or politicized bureaucrats) can
be used to victimize or harass innocent parties. Worse, the fear is that criminals with access to such
information can identify their targets for kidnapping and other heinous activities. The general
public has to be assured that any amendment to the law will not violate the right to privacy. Any
amendment has to be cautiously crafted in a manner that will allay the fears of public citizens. The
public must likewise be assured that the amendment of the Bank Secrecy Law will be done to
conform to internationally accepted standards and that the amendment will be confined to obtaining
the relevant information for bank monitoring and supervision.
On the other hand, the failure to take prompt corrective action relates to the moral hazard
problem: The regulator delays the action (especially, closing banks or meting out severe
punishments) for fear that this would create uncertainty and panic, thereby destabilizing the whole
financial system. Note that the BSP is swift in punishing the thrift and rural banks but is more
cautious in dealing with commercial banks.
Policy Tensions
The tension (or even conflict) between regulatory/supervisory objectives on the one hand
and macroeconomic policy objectives on the other hand is real. This has happened not because such
tension is intrinsic but because mistakes or failures in macroeconomic policy make regulation more
difficult.
Macroeconomic concerns constrain regulation as in the case where the regulator may express
reluctance or may not act promptly to close an errant bank, fearing that this would trigger a failure
of confidence in the banking system.
There is likewise the situation in which the monetary and exchange rate goals are traded off to
accommodate regulatory considerations. For example, the BSP refused to depreciate the exchange
despite its sharp misalignment. The BSP was sensitive to the problem that domestic banks had
accrued negative net foreign assets, thus making devaluation a regulators nightmare. The BSP
likewise thought that a stable exchange rate would help strengthen the financial sector. But
exchange-rate stability translated into an overvalued currency, which artificially propped up the
financial sector. Indeed, the strong and stable peso-dollar rate allowed financial institutions to take
advantage of cheap foreign loans as well as to engage in risky instruments that offered lucrative
returns. But then came the fall of the Thai baht and the contagion effect that exposed the weak
fundamentals of the Philippine economy.
The dilemma that the BSP confronts as both monetary authority and regulator/supervisor
brings to the surface the debate on whether to separate the distinct functions of regulation and
20
supervision into two implementing agencies.23 Some legal scholars however note that carving out a
new agency, independent of the BSP, may require a constitutional amendment.
Despite the legal impediment, the proposal to separate the regulatory and supervisory
functions deserves serious consideration. The BSP through the Monetary Board can continue to set
monetary, exchange rate, and regulation policies while another institution can attend to the
supervision functions. The latter can then undertake fair evaluations of financial institutions
without fear of compromising macroeconomic objectives. Further, the separation of functions
makes it easier to pinpoint responsibility in the event of bank failuresthat is, whether the
breakdown is a result of the supervisors failure to detect the problem or of the regulators failure to
act on the supervisors report. Hence, accountability is enhanced.
Apart from carving out the supervisory functions from the regulatory role, bank supervision
must now expand to cover financial supervision even of non-banking, non-financial enterprises.
Universal banks are becoming more and more involved in investment banking, the implication of
which is that their performance in the equity market affects the banks state of health. In the same
vein, banks either have control or ownership of other business corporations. Such non-financial
enterprises also have to be subject to supervision, for their failure can lead to the banks failure or
collapse.
Gochoco-Bautista (1998) has thus argued for doing away with supervision along functional
lines and replacing this with a unified supervision of bank and non-bank enterprises. Furthermore,
an objective conditionthe rapid technological innovation in the domestic and international
banking systemhas all the more made unified supervision a necessity. To quote Gochoco-
Bautista: Given the technological advances and innovation in the banking industry and in the
communication industry, the liberalization of capital, in which private corporations can directly
borrow or sell equity abroad, and the liberalization of investments by banks in allied enterprises,
both financial and non-financial, it is difficult for any one agency to have a complete picture of the
effects on the financial system unless a unified structure of supervision is in place.
It goes without saying that a separate unified supervision structure has to be independent
from the BSPs Monetary Board. At the same time, the supervisory body must regularly report to
the Monetary Board. To reiterate, the separation of the regulatory and supervisory functions and the
unification of the structure for supervision address several concerns: improving accountability and
strengthening the checks and balance system, enhancing transparency, making regulatory capture
more difficult (in the sense that the relationship between regulator and regulated is made more
distant), and adapting to profound changes in the banking system brought about by technology and
innovation.
Deposit Insurance
Depositors are supposed to provide a natural check to the activities of banks. However, in its
desire to attract savings and promote financial intermediation, government has followed the deposit
insurance scheme.
23
Gochoco-Bautista (1998) first raised the possibility in a draft paper.
21
In the Philippines, deposits of up to P100,000 are insured by the Philippine Deposit

Insurance Corporation (PDIC). Insuring deposits undeniably creates a moral hazard problem.
Specifically, insurance may create the condition for depositors to become less vigilant in monitoring
bank performance since their deposits up to a certain amount are protected.
In this connection, Harald Benink and George Benston suggest that deposit insurance be
limited to accounts paying low interest rates and accounts invested in safe liquid assets. (c.f. The
Economist, 1999). This makes depositors more selective and meticulous in choosing their banks. In
turn, banks become more prudent in weighing the risks and returns of investments.
Some legislators are proposing to increase the amount covered by deposit insurance. On one
hand, this may only reinforce the moral hazard problem. On the other hand, a modest increase in
deposit insurance to catch up with inflation will protect small depositors who are already
disadvantaged by lack of access to information. A higher insurance cover can be accommodated
without leading to a significant increase in the premium rate in a situation where information is
transparent and regulation and supervision are well-enforced.
Policy makers also have to find out whether low-income depositors (who in the main do not
have the connections and have less access to information) have benefited from bank-failure
insurance. It is hypothesized that the better-off depositors (who have connections and have better
access to information) have been the main beneficiaries of insurance payments.
The bank regulators can draw some lessons from the practice in New Zealand, in which
there is no deposit insurance but all the relevant information are published in newspapers and
prominently posted in the bank branches. The public information includes the credit rating, capital
adequacy, impaired asset and provisioning levels, lending concentration levels, and amount of
DOSRI loans of the bank(s). The New Zealand experience also shows that promoting transparency
and providing full information are the most cost-effective ways to conduct bank supervision. It is
reported that New Zealand only has about a dozen supervisors.
Of course, we need not strictly follow the New Zealand model by eliminating deposit
insurance in one fell swoop. This certainly is politically undesirable. But the most important lesson
to be learned is that providing full information to the public and enhancing the depositors vigilance
in monitoring their banks are superior to deposit insurance in keeping the integrity and
strengthening the credibility of the bank system.
Also worth exploring is the proposal of Charles Calomiris that requires banks to issue
subordinated debt (c.f. The Economist, 1999). These instruments have fixed returns and are
subordinate to deposits. Thus, when a bank rakes in profits, holders of this debt do not gain. But
when the bank fails, holders get the last crack at the banks assets. Hopefully, holders become more
vigilant of a banks risky activities.
In the Philippines, the deposit insurance scheme is beset with information problems. The
fact that the financial and banking system is characterized by information asymmetry is already a
major constraint. This is aggravated by the sparing information that some private banks (and even
public institutions) give to the PDIC.
22
The lack of information makes it very difficult for PDIC to conduct bank monitoring and
surveillance. It likewise hampers the PDIC in fulfilling its task of making insurance payments fully
and promptly.24 Recognizing that lack of information has impaired its work, the PDIC has firmly
supported policy initiatives that will improve information disclosure, transparency, and
accountability.
Another major problem pertains to the relationship of the BSP and the PDIC. To be
precise, the BSP and PDIC have policy differences on key issues.
This is best exemplified by the contradicting positions of the PDIC and the BSP on the
Orient Bank closure. The BSP (i.e., Singsons governorship) wanted to save Orient Bank without
any change of ownership, while PDIC was firm in penalizing the bank owners and management for
blatant violation of prudential procedures and regulations. The PDIC was likewise critical of how
the BSP managed monetary and exchange-rate policies, which resulted in shifting incentives toward
short-term, high-risk foreign borrowing.
To be sure, the BSP and the PDIC need to have close coordination. In fact, some of their
basic tasks are common in relation to bank examination though the specific objectives may differ.
(In the case of BSP, bank examination is done to ensure that regulations are followed. In the PDIC
case, the function of bank examination relates to insurance validation.) But even as the specific
objectives may differ, they are the elements of the bigger goal of making banks follow sound
practices and comply with prudential standards. This situation in which supervisory tasks are being
duplicated brings us back to the Gochoco-Bautista proposal to develop unified supervision for
financial institutions.
V. Issues and Problems of Non-bank Financial Intermediaries
In relation to the non-bank financial institutions, it is generally acknowledged that this sub-
sector is relatively immature, in comparison to the non-bank institutions in the other ASEAN
countries. Capital adequacy requirements are low, and supervision measures fall below the standards
set by the International Organization of Securities Commissions (IOSC). Like the case in the bank
sub-sector, both monitoring and compliance enforcement need a lot of improvements.
The key reform to boost the non-bank financial market is the strengthening of governance
institutions. In particular, the Securities and Exchange Commission (SEC) must upgrade its
capacity to regulate and supervise the non-bank intermediaries. It is in the right direction, for
example, to give more independence and autonomyfinancially and administrativelyto the SEC
to carry out its oversight functions.
In the same vein, the salary and incentive structure of the SEC has to be upgraded to attract
highly qualified and competent key personnel. Higher salaries together with tougher disciplinary
measures can make the regulators and executives resistant to bribes or regulatory capture for fear that
they would lose there high-paying jobs.
24
Despite the uncertainty of insurance and the positive effect this should have on depositor-led regulation, deposits
in general continue to rise even as bank failures have become common occurrences.
23
Needless to say, all this must be accompanied by reforms towards greater transparency in
regulation and supervision. In a developmental way, too, the regulatory and supervisory framework
for the non-bank financial intermediaries should be able to conform to the international standards
set by the IOSC. The culture and procedures of regulation should be patterned after the best
international practices.
Of particular significance is strengthening the capacity of SEC to do forensic investigation.

A large part of this problem can be attributed to the lack of good lawyers in the SEC. This again is
related to the low incentive problem. To illustrate, there is a rapid turnover of young lawyers
because of the relatively low salaries they receive (they get about P 12,000 monthly). By moving to
the private sector upon getting the training at the SEC (i.e., learning by doing), they are able to earn
more than double the SEC salary.
Notwithstanding the significance of strengthening the SECs governance capacity, we have to

consider the point raised in an earlier section of this paper, that is, the need for a unified supervision
of banks, non-bank financial enterprises and their other non-allied corporations. In this light, it is
necessary to situate the SECs supervisory role (and for that matter, the role of other government
agencies with supervisory powers).
Apart from SEC reforms, another critical area is the debt and money market. The
government securities market is fairly established, but the private debt and money markets are
underdeveloped. Within the public sector, it is the national government and the BSP that are debt
issuers, but the volume relative to demand is relatively small.
The size and volume of the commercial debt market are puny, so to speak, in comparison to
some Asian countries. According to the Asian Development Bank (ADB), the volume of corporate
debt issues in the Philippines is significantly lower than that of India, Malaysia, Thailand, Indonesia,
and China.
Corporate bond issues are likewise rare. The ADB, for instance, noted that the last corporate
bond issue was done in 1995, amounting to P 160 million. On the whole, commercial papers have
short-term tenors.
In an earlier section, the paper mentioned the potentials of the mutual fund industry but at
the same time noted its unsteady growth. The size of the mutual fund market by end-1998 was only
0.2 percent of total market capitalization. In contrast, the size of mutual fund markets in Singapore
and Thailand would be equivalent to 11 percent and 9.5 percent, respectively, of market
capitalization.
To invigorate the non-bank financial intermediaries then, it is an imperative to create the

environment for incentives in this sector to prosper. In this connection, the ADB has provided
technical assistance to the SEC, amounting to US$ 2 million. This assistance will finance a study
that will serve as inputs to broaden and deepen the markets covered by the non-bank financial
intermediaries.
In a nutshell, the necessary reforms that have to be studied include the following:
1) Developing the SECs governance structure.
24
2) Simplifying the bureaucratic process.

3) Reducing the costs for debt issuers.
4) Providing the market infrastructure.
5) Establishing the appropriate regulatory framework for the non-bank financial
intermediaries and developing the corresponding supervisory mechanisms.
6) Developing a unified supervisory structure covering the corporations in the whole
financial sector but also their allied enterprises that are classified in the non-financial
sectors.
Furthermore, Congress has set in motion the process for the enactment of a bill titled The
Securities Regulation and Enforcement Act (SREA). The objectives of the bill jibe with the reforms
mentioned above. Among the key features of the SREA are requirements on full disclosure,
reinforcement of the antifraud provisions, promotion of self-regulation, and the strengthening of the
SEC as a rule-making, regulatory body.
Insurance Industry
The insurance industry is technically part of the non-bank financial intermediaries.

However, the paper gives a separate treatment to the private insurance industry and the
governments social security institutions.
The life insurance group accounts for most of the insurance industry. Although the non-life
insurance groups are larger in number, the life insurance group is bigger in terms of assets. As of
1991, life insurance accounted for 63.2 per cent of the total industry assets. Assets of life insurance
companies also grew by 150 percent between 1986 and 1991; non-life companies meantime grew by
98 per cent (Lamberte and Llanto, 1995).
Due to this disparity in assets and growth, foreign investors in non-life insurance companies
are encouraged by the Insurance Commission. In 1987, the foreign participation limit for non-life
insurance companies was increased from 30 per cent to 40 per cent. The Philippine offer in the
GATS Agreement has increased this to 51 percent. Furthermore, foreigners have been allowed to
invest without seeking the permission of the Board of Investments.
It is a different story with respect to life insurance companies. They are not allowed to
receive new foreign investments, although the Philippines has negotiated in the GATS to raise
foreign equity limit to 51 percent. But again, it must be immediately qualified that the increase in
foreign equity only applies to existing companies. There is a moratorium on foreign participation in
the life insurance sector. The Philippine negotiating stance in the GATS protects those corporations
(including multinationals) that have already established operations in the country.
As noted by Lamberte and Llanto (1995), the barriers to entry of new foreign corporations in
life insurance have resulted in a lack of access to foreign capital, expertise, experience, and innovative
products. In short, there is poor competitiveness in the life insurance sector.
The economic environment also plays an important role in improving the competitiveness of
insurance companies in the country. A low-growth economy results in a low-income population
that cannot afford life or non-life insurance. At present, the market of insurance companies remains
25
small. Thus, economies of scale are not maximized; innovation is not developed; expertise is not
honed.
Aside from income, the small market could also be due to poor recognition of Filipinos of
the benefits of insurance. In the case of health insurance, according to the Health, Education and
Welfare Specialists, Inc. (1995), only 10 per cent of the population could afford to enroll in health
insurance plans by commercial indemnity firms and health maintenance organizations (HMOs).
The rest of the population relies on employer-provided health benefits, if they are formally
employed, and community based insurance, which has even less coverage.
With a small market, domestic insurance companies are vulnerable to being clobbered by
multinational insurance companies whose presence worldwide enables them to guarantee higher
returns for peoples savings as well as to spread the risks more effectively.
However, the entry of foreign groups cannot immediately be expected to lower premiums.
Insurance is prone to market failures like moral hazard and adverse selection. Unless firms can
correct such problems at minimum cost through innovative practices, premiums are still likely to be
high and unaffordable to many.
Government Insurance Corporations
According to Lamberte and Llanto (1995), the asset base of government insurance
companies is almost three times that of private insurance companies. After all, to quote Lamberte
and Llanto, the Social Security System (SSS) extends insurance to nearly the entire workforce25 and,
as such, has 10 million members. On the other hand, the Government Service Insurance System
(GSIS) is the sole provider of social insurance services to government employees.
Unfortunately, studies show that the operations of the SSS and GSIS are unsustainable. Sta.
Ana (1997), citing other studies, enumerates the following disturbing data:
1) An actuarial assessment of the SSS and GSIS estimates that social benefits funds of the
GSIS and SSS will become negative in 2008 and 2014, respectively and the funds will be
depleted in 2016 and 2022, respectively.
2) In 1992 and 1993, the benefit payments and operating expenses of SSS exceeded
contribution income. Hence, the SSS had to use investment income to cover the current
expenses.
3) Between 1989 and 1993, the average real rate of return for the SSS portfolio was only
5.0 percent. The GSIS investments had a negative real rate of return, a five-year average
of 0.6 percent.
4) Employer compliance with SSS contribution requirements is very low, with estimates
ranging from 35 to 55 percent. Low compliance has two manifestations, namely the low
number of members contributing and the low number of contributions during the year.
25
The statement is somewhat exaggerated. A significant segment of the fully employed workers are either self-
employed or engaged in family work (unpaid labor). Among the underemployed, many belong to the informal
sector. It is safe to say that a large segment of the workforce is not fully covered by SSS benefits (i.e., the workers
are either not members or irregular, non-paying members of the SSS). One estimate is that the SSS covers 60
percent of the workforce in the formal sector (cited in Sta. Ana, 1997), still far from the goal of attaining universal
coverage.
26
5) The SSS coverage of 60 percent of the workers in the formal sector, plus the fact that it
does not provide protection to the large informal sector, suggests that the SSS is still far
from attaining universal coverage. The Philippine social security system has not reached
the absolute poor those who need social security most.
In anticipation of a future crisis, some policy-makers advocating a liberal economic agenda

have pushed for the privatization of the pension system. This would have likewise involved moving
from a defined benefit system or pay-as-you-go to the defined contribution system. The former
system is guided by the principle of social equity and solidarity since benefits are shared by all
although some contributors get fewer benefits than individuals belonging to the disadvantaged
sectors. The latter favors the individual since the individual gets back all his or her contribution
and the investment income (Sta. Ana, 1997).
One reason, among other important factors, that explains the low rate of return of SSS and
GSIS funds is the tradeoff involved in a defined benefit system. In this system, the contributions of
active SSS or GSIS members pay for the pension of the retirees. In addition, the system allows that
funds be used as a social safety net for those contributors who need immediate benefits. Thus, the
principle of solidarity. There is an opportunity cost to individual contributions being used to
finance collective benefits. This is not to say that the defined benefit system is inferior. For one
thing, an incentive for workers to continue contributing premiums is their expectation that they
likewise benefit from the social insurance funds even before their retirement (some sort of
contingency fund, especially during times of calamity or emergency).
The model of choice is the Chilean private pension system that is characterized by defined
contribution or individual capitalization accounts. Contributors have the freedom to choose the
private pension fund that will manage their accounts.
The Chilean model has gained global attention because of its reported success. However,
doubts about its supposed benefits (e.g. coverage and returns) plus neglect of the equally important
objective of redistribution have tempered the drive towards full privatization. Other Latin American
countries have incorporated the positive lessons drawn from the Chilean model but at the same time
discarded the negative features. In Argentina, a mixed system is in place where public enterprises
compete with the private sector in managing the pension funds.
The new laws on the SSS (Republic Act 8282) and GSIS (Republic Act 8291), enacted
during the term of Fidel V. Ramos, have opened the way for private sector participation in the
management of pension funds. The laws nevertheless have ruled out the privatization of the SSS and
GSIS. What we can thus expect in the future is some kind of public versus private competition
co-existing with private competition in the management of pension funds. At the same time, the
reforms will give participants the choice as to the type of social security fund they preferthe
individualized capital account or the collective account (as in the defined benefit system) or both.
With the laws in place, the next step is to spell out the implementing rules and regulations.
The implementing rules and regulations should cover the operationalization of the mix of public and
private management of the social security funds.
Even as the public sector (i.e., the SSS and GSIS) remains the leader in social insurance, the
private sectors role is bound to grow. The scope of social insurance in the Philippines has gone
27
beyond the boundary of public provision of defined benefits sourced from payment of social
insurance premiums. Another type of social insurancewhich the government must assume
responsibility through fiscal tools, is the provision of social assistance to the absolute poor.
The private sector can supplement governments efforts to provide the defined benefits.
Moreover, it has to take a bigger role vis--vis another type of social insurance provision, that of
managing defined contribution accounts. At this time, the defined benefits from SSS and GSIS are
insufficient to cover social security.
The management of individual savings should also be treated as part of the social insurance
industry. This type of social insurance will attract those savers who need more than the minimum
basic protection and who can afford to pay higher premiums. The private sector has the advantage
in this kind of business, given the more freedom and flexibility they have to maximize financial
returns. This nevertheless does not preclude the SSS or GSIS from attempting to manage individual
savings.
A final point has to be made on the states use of social security funds to influence
economic, business, or political developments. Recently, the SSS and GSIS were criticized for
buying substantial shares of the PCIBank, which was perceived to be politically motivated. Finance
Secretary Espiritu has likewise told the SSS to drop its plan to increase its holdings in Petron
Corporation towards getting a board seat. The aggressiveness of SSS has prompted Secretary
Espiritu to propose a ceiling on the amount of government-managed pension funds that can be
invested in a particular corporation or in a particular industry.
In theory, such public corporations can indeed be manipulated by national government to

intervene in financial markets to serve some economic objectives. In some countries with strong and
vibrant public enterprises, the resources of these enterprises are typically used to meet targets relating
to fiscal, monetary and exchange rate policies.
The problem, however, boils down to the political economy. In the Philippines, public
enterprises have not been spared from political discretion or political discrimination to satisfy private
particularistic interests.
In this light and in consideration of private sector participation in managing pension funds
in the not-too-distant future, there is a need to form an independent oversight body to ensure the
integrity of the management of social security funds.
VI. Conclusion
The deregulation of the interest rate, the liberalization of bank entry and branching and the
liberalization of foreign exchange transactions have strengthened the financial sector. All this has
enhanced the sectors competitiveness. Notwithstanding these reforms, the financial sector has yet to
decisively resolve the perennial problems of low deposit rates, high lending rates, weak regulation
and supervision, and the vulnerability of banks, non-banks, and insurance companies to shocks.
Domestic factors such as appropriate macroeconomic policies (e.g., aligning nominal

exchange rate with real exchange rate, lower reserve requirements, reasonable domestic interest rates),
28
more rational credit allocation policies, and the tempering of government presence in the financial
sector will contribute to the competitiveness of domestic financial service provision.
Similarly, the process of globalization is a compelling factor for domestic providers to

become more efficient and improve the quality of their operations, even as the opening up of the
financial sector will weaken oligopolistic pricing.
With respect to legislation or legislation-related matters, the following areas bear watching:
1) Pursuing amendments to the General Banking Act that will diversify domestic bank
ownership (to include a substantial easing of barrier to entries of foreign banks), reform
accounting rules, and plug the loopholes that weaken bank regulation and supervision.
2) Making access to information and information-gathering conform to international
standards through mandating financial information disclosure, improving transparency
mechanisms, and relaxing the Bank Secrecy Law.
3) Passing anti-trust legislation.
4) Setting in motion the legal and political processes towards the institutional separation of
regulatory and supervisory functions and towards the creation of unified structure for the
supervision of all financial corporations and allied enterprises.
5) Providing a definitive legal resolution with respect to the following provisions in the
New Central Bank Act:
Subjecting the BSP Governor to confirmation by the Commission on
Appointments
Imposing a one-year bar on any person with substantial interest in a private
bank prior from being appointed as member of the Monetary Board.
6) Enacting the Securities Regulation and Enforcement bill insofar as it will strengthen
SECs governance and accountability, fortify antifraud provisions, and improve
information disclosure.
7) Fleshing out private sector participation in the management of pension funds or social
insurance as provided for in Republic Acts 8282 (SSS) and 8291 (GSIS).
8) Enacting the Individual Retirement Account bill that hopefully will mobilize savings and
give a boost to the non-bank financial intermediaries.
Among reforms that can be done through administrative and executive processes, the
strengthening of prudential regulations and the building of institutional capacity for regulation and
supervision are the most significant.
Equally important is the determination to carry out the structural and policy reforms both
on the legislative and executive fronts towards creating the favorable environment for sustaining
macroeconomic growth, enhancing productivity, increasing domestic savings, and attracting
productive investments.
The continuing multilateral negotiations on the General Agreement on Trade and Services
(GATS) should be seen as an opportunity to facilitate the necessary reforms to create the favorable
environment for growth, productivity, and competitiveness in the financial sector. Although there
has been a gradual opening up, there still remain significant barriers with regard to the mode of
supply that is most critical to the financial systemthat is, the commercial presence of foreign firms.
29
As mentioned in an early section, the Philippine GATS strategy is to use the subject to
reciprocity test vis--vis the most favored-nation (MFN) principle. In other words, the Philippine
treatment of foreign banks and other foreign financial firms will only follow from how other nations
treat Filipino banks and financial firms.
This strategy, regrettably, does not make good sense. The reciprocity test is insignificant, for
the Philippine financial corporations are far from ready in establishing commercial presence abroad
to compete in global financial markets. An indication of this is that the banking industry and the
insurance industry are not confident without the barriers to entry they are asking to protect them
from foreign competition in the domestic financial markets. If Philippine financial corporations
have to shape up for domestic competition, much more preparation is required for them to be
competitive in the global markets.
The other reason why the MFN reciprocity test is an unsound strategy is that the Philippines
is a net recipient of capital. It is hence to the national interest that Philippine financial corporations
first serve the capital requirements of the domestic economy.
The key issue is the efficiency and competitiveness of the Philippine financial sector. In
turn, this is a critical input to the productive sectors, including the export sector. And to achieve a
higher level of efficiency and competitiveness, the players in the Philippine financial system can learn
and grow from more competition. In this context, the liberalization of entry contributes to
providing a competitive environment.
To summarize, it serves the national interest for the GATS negotiation strategy to lean
toward further liberalizing the entry of foreign corporations in the financial sector. Related to this,
the negotiations should not be tied to the subject to reciprocity test. To repeat, as far as the
financial sector is concerned, the MFN is, to be blunt, irrelevant. To illustrate, we should welcome
the entry of a healthy bank or financial entity with proven track record, even if the Philippines does
not have an MFN agreement with the foreign firms mother country. By the same token, we should
restrict the entry of a weak or vulnerable bank from another country even if the Philippines and that
country have an MFN agreement.
At this point, we emphasize that the decisions to be made by those engaged in financial
services will rely more and more on the market. Yet as many have learned painfully from the Asian
financial crisis, the important signals to the market will come from the governments ability to detect
and overcome market failures. Along this line, government is expected to take the lead role in
crafting innovative state-market arrangements. Together with policies conducive to achieving
sustained growth, good governance exercised by state institutions capable of fairly and efficiently
applying the rules will inspire confidence in the financial system.
As a final subsection, we explore the role of the private sector and civil society in the pursuit
of financial reforms in a liberalized setting. It goes without saying that we hope that the civil society
institutions and enlightened sections of the private sector will push the advocacy of the substantive
reforms discussed in this paper. The productive sectors in the economy, including the exporters,
have much to gain from reforming the financial system. The recent local and global financial crisis
serves a reminder to everyone that many banking and financial reforms cry out to be done.
30
The focus of the advocacy can be on pending legislation, especially those relating to
information disclosure, transparency, and accountability. An urgent matter is putting into motion
the lobby work on the GATS negotiationsthat is for the Philippines to delink the MFN principle
from the bargaining vis--vis the financial sector and correspondingly discard the subject to
reciprocity test.
The issue of liberalization of foreign entry in the financial sector is indeed contentious within
the civil society community. Hence, policy dialogue involving the affected private sector and a wide
range of civil society organizations should be nurtured and sustained.
Nevertheless, even at this juncture, a critical mass of private sector organizations, academics,
opinion-makers, and NGOs can be formed to take up the cudgels for a controversial but progressive
reform agenda. The challenge is to facilitate the building of such an alliance.
Civil society and private sector initiatives, to be sure, are not confined to influencing policy.
They can in fact immediately take concrete, practical steps to give flesh to information dissemination
and disclosure. Some segments of the media, for example, are now regularly publishing relevant
information and data that reflect performances and activities of banks and other financial firms.
Along this line, NGOs and private sector groups, especially those engaged in advocacy and consumer
protection, can have a division of tasks in tracking trends in the financial sector and in monitoring
the best and worst practices of banks and other financial enterprises.
It is in the realm of the political economy where the crucial decisions will be shaped. On the
basis of how policy and institutional issues are being tackled in the first year or so of the Estrada
administration, we can expect that the pursuit of a reform agenda will meet rough sailing even as
policies become less predictable and more uncertain. Thus, initiative and pressure from below will
increasingly intervene in the determination of public policy.
31
REFERENCES
Avila, John Lawrence V. (1999). "Realizing Gains from the Liberalization of Services
Trade: An Analysis of the Opportunities for the Philippines." Draft Copy.
Bordon, Ann, Nepomuceno Malaluan and Filomeno S. Sta. Ana III (1999). An Open
Letter to the Honorable Members of the Commission on Appointments. Position
Paper of Action for Economic Reforms. 22 June.
Gochoco-Bautista, Maria Socorro (1998). "Prudential Regulation and Supervision:

Comments on the Proposed Amendments to the GBA." Manuscript.
Health, Education and Welfare Specialists, Inc. (1995). Evaluation of the Potentials of Private
Insurance Industry as a Source of Health Care Finance in the Philippines. Discussion
Paper Series No. 95-08. Makati: Philippine Institute for Development Studies.
Hutchcroft, Paul D. (1998). Booty Capitalism: The Politics of Banking in the Philippines.
Quezon City: Ateneo de Manila Press.
Intal, Ponciano S. Jr. and Gilberto M. Llanto (1998). "Financial Reform and Development in the
Philippines, 1980-1997: Imperatives, Performance and Challenges." Discussion Paper
Series No. 98-02. Makati: Philippine Institute for Development Studies.
Lamberte, Mario B. and Gilberto M. Llanto (1995). A Study of Financial Sector Policies: The
Philippine Case. Financial Sector Development in Asia. Edited by Shahid N. Zahid.
Manila: Asian Development Bank.
Lim, Joseph Y. (1992). Financial Intermediation and Monopoly Practices in the Banking
System. Issues and Letters. Published by the Philippine Center for Policy Studies.
November.
Montes, Manuel F. and Johnny Noe E. Ravalo (1995). "The Philippines." Financial Systems
and Economic Policy in Developing Countries. Edited by Stephen Haggard and Chung
H. Lee. New York: Cornell University Press.
Sta. Ana, Filomeno S. III (1997). Reforming the Pension System: Is Privatization a la Chile the
Best Route?. Manuscript.
The Economist (1999) Better than Basle. June 19-25.
Tullao, Tereso, Jr. (1998). "The Liberalization of Professional Services." Manuscript.
32
Vos, Rob (1997). "Financial Reform, Institutions, and Macroeconomic Adjustment. The
Destabilizing Effects of Financial Liberalization in the Philippines, 1970 to 1992."
Experiences with Financial Liberalization. Edited by Kanhaya L. Gupta.
Massachusetts: Kluwer Academic Publishers.
World Trade Organization (1998). "Philippines. Schedule of Specific Commitments."

Supplement 3, General Agreement of Trade in Services.
33

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TABLE 1.

ASSETS OF THE FINANCIAL SYSTEM (in billion pesos)

1998 1997 1996 1995 1994 1993 1992 1991 1990

NON-BANKS FINANCIAL INTERMEDIARIES

1996 1995 1994 1993 1992 1991 1990

BANKS 1,358,166 963,681 707,448 552,695 400,610 332,281 290,545

SOURCE: Financial Fact Book, 1996, Bangko Sentral ng Pilipinas

1996 1995 1994 1993 1992 1991 1990

TOTAL DEPOSITS 1,293,332 1,018,650 807,123 649,255 503,104 425,324 359,018

SOURCE: Financial Fact Book 1996, Bangko Sentral ng Pilipinas

Banks Non-banks Insurance

Palay 7,723.00 31,600.00 97,674.00

Total Output (TID+TFD) 37,769,530.00 9,553,190.00 9,491,508.00

SOURCE: 1990 Input-Output Tables, National Statistics Office

DESCRIPTION Banks Non-banks Insurance

1990 10.873 20.208 14.2 -3.327

Ann B. Bordon and Filomeno S. Sta. Ana III1

Nevertheless, the financial sectorin particular, the banking sectorhas remained

One way is to look at competitiveness in terms of comparing the performance of the

To complement the test of international standards, competitiveness should likewise be

I. The Financial Sector Amidst Globalization

The restrictions on commercial presence of foreign intermediaries are stipulated in domestic

II. Overview of the Financial Sector

Universal banking was in fact an IMF (International Monetary Fund) recommendation. It

Non-bank financial intermediaries

Nevertheless, given the asymmetric information (most pronounced in developing countries

Insurance and Pre-Need Industries

Likewise belonging to the category of non-bank financial intermediaries is the insurance

III. Input-Output of the Financial Sector

IV. Banking Issues and Reforms

Selective credit policies were lifted, leading to market-determined interest rates.

Financial Intermediation Costs

Another critical reform area is the development of a policy environment conducive to

equity participation of up to 30 percent of domestic banks and 60 percent of their locally

Better Institutions, Better Bank Regulation

Regulation of financial institutions is tricky, thus, requiring creative approaches. The

In short, an important reform thrust is to have more transparency and information

In the Philippines, deposits of up to P100,000 are insured by the Philippine Deposit

V. Issues and Problems of Non-bank Financial Intermediaries

Of particular significance is strengthening the capacity of SEC to do forensic investigation.

Notwithstanding the significance of strengthening the SECs governance capacity, we have to

To invigorate the non-bank financial intermediaries then, it is an imperative to create the

1) Developing the SECs governance structure.

2) Simplifying the bureaucratic process.

The insurance industry is technically part of the non-bank financial intermediaries.

Government Insurance Corporations

In anticipation of a future crisis, some policy-makers advocating a liberal economic agenda

In theory, such public corporations can indeed be manipulated by national government to

Domestic factors such as appropriate macroeconomic policies (e.g., aligning nominal

Similarly, the process of globalization is a compelling factor for domestic providers to

Gochoco-Bautista, Maria Socorro (1998). "Prudential Regulation and Supervision:

The Economist (1999) Better than Basle. June 19-25.

Tullao, Tereso, Jr. (1998). "The Liberalization of Professional Services." Manuscript.

World Trade Organization (1998). "Philippines. Schedule of Specific Commitments."

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