1
According to “The General Banking Law Annotated: Book 2,” the
first organized credit institutions, known as Obras Pias, were
established in the Philippines during the 16th century Spanish
colonial era.
The capital of Obras Pias came from pious Catholics and their
profits were intended to maintain hospitals, orphanages, and
other charitable endeavors.
The Obras Pias served as commercial banks and marine
insurance companies, with the bulk of their funds invested in the
galleon trade.
In 1869, the opening of the Suez Canal facilitated trade between
the Philippines and Europe. The Philippines then attracted
British capital, and in the years that followed, the Chartered
Bank of India, Australia, and China (now known as the Standard
Chartered Bank) and the Hong Kong and Shanghai Banking
Corporation (HSBC), both British-owned banks, opened their
branches in Manila.
In 1883, Madrid-based Banco Peninsular Ultamarino also
established a branch in the country. However the Spanish bank
ceased operations after four years.
By the end of the Spanish regime, the banks in existence were:
El Banco Español Filipino de Isabel (now the Bank of Philippine
Islands or BPI), which was given the sole mandate under a
Spanish Royal Decree of 1854 to issue banknotes called Pesos
Fuertes; the Chartered Bank of India, a branch of the HSBC; the
Monte de Piedad; and the Banco Peninsular Ultamarino de
Madrid.
It should be noted that under the Spanish regime, there were no
significant Filipino interests, initiatives, or capital in banking.
During the American colonial period, banks from the United
States of America started to establish local branches that would
cater to growing American economic interests and capital inflow
into the country.
The American Bank was first to open a branch in 1901.
However, it was placed under receivership by the Insular
Treasurer for making doubtful loans after only four years of
operation.
At the turn of the 20th century, the Americans established the
Guaranty Trust Corporation (GTC) and International Banking
Corporation (IBC). The existence of GTC was short-lived, while
IBC was eventually taken over by the National City Bank of New
York (now known as Citibank, N.A.).
Other foreign banks subsequently made their presence in the
Philippines. In 1918, the Manila branch of the Yokohama Specie
Bank was given a license to do business in the Philippines.
From 1919 to 1930, foreign banks Asia Banking Corporation, the
Chinese-American Bank of Commerce of Peking, China, and the
National City Bank of New York opened branches in the
Philippines.
During the American colonial era, the Philippine banking system
was largely dominated by foreign bank branches whose capitals
were devoted to financing commerce and trade, rather than the
development of the country’s natural resources.
It should also be mentioned that the Bank of the Philippine
Islands, which then possessed the privilege of issuing currency
notes, was the only significant bank controlled by local interests.
To break the foreign banking monopoly and remedy the lack of
credit facilities, the Philippine National Bank (PNB) was
established in 1916 with the Philippine Government as the
majority stockholder.
The PNB was meant to function as a government enterprise that
would widen the variety of banking services “beyond trade
finance in exportation and importation, money changing of
foreign currency, and fund transfers, all of which, while useful in
the short term, failed to mobilize capital in the development of
natural resources.”
Its charter at that time empowered the PNB to issue bank notes
and act as a depositary of government funds.
Last week, we discussed the growth of banking in the
Philippines during the Spanish and American colonial periods.
In this second article of our four-part series on the history of
banking in the country, we will examine how banking developed
during the Commonwealth era and under the Philippine
Republic.
During the Commonwealth period (1935-1946), more foreign
bank branches, such as the Bank of Taiwan and the
Nederlandsche Indische Handelsbanks, were established in the
Philippines.
In 1939, the government created the Agricultural and Industrial
Bank to absorb the functions of the National Loan and
Investment Board and to harness government resources.
The Philippine Bank of Communications, reported to be the first
bank with genuine Filipino private capital, was also established
during this period. However, it was temporarily closed at the
outbreak of the Second World War.
According to the Bangko Sentral ng Pilipinas’ “The General
Banking Law Annotated: Book 2” (our main source of these
historical data), only Filipino-owned and Japanese banks were
allowed to operate during World War II.
The Chartered Bank of India, Australia, and China, the HSBC,
and the National City Bank of New York were all treated as
enemy properties and placed under liquidation by the Japanese
Military Government.
On the other hand, the Nampo Kaihatsu Kinko (or the Southern
Development Bank) opened a Manila branch in 1942 and acted
as the Japanese government’s fiscal agent in the Philippines.
After the liberation, all domestic banks that operated during the
Japanese occupation were unable to reopen because the
greater part of their assets consisted of worthless Japanese war
notes, bonds, and obligations of the Japanese-sponsored
republic, and balances with Japanese banks.
In June 1945, Executive Order No. 48 paved the way for the
reopening of some banks.
The first license to reopen was granted to the National City Bank
of New York in June, 1945. In the same year, other foreign banks
such as the Chartered Bank of India, Australia, and China,
HSBC, and Nederlandsche Indische Handelsbanks were
likewise granted the license to reopen.
In 1947, a branch of the Bank of America, NT & SA (Bank of
America) of San Francisco, California, was allowed to establish
a branch in Manila. The following year, the Bank of America
absorbed the assets and liabilities of the local branch of the
Nederlandsche Indische Handelsbanks.
In 1949, when the Central Bank of the Philippines started its
operations, the banking system consisted of seven commercial
banks, three thrift banks, the sole government specialized bank,
the Agricultural and Industrial Bank, and seven foreign bank
branches.

In the next two installments of this series, we will discuss the
financial innovations that were introduced in the Philippines
(divided into three main episodes):
* Banking innovations prior to the 1990s.
* Institutional changes in the 1990s: classified into foreign
exchange liberalization, financial liberalization, and the passage
of the General Banking Law of 2000.
* After the year 2000: The emergence of non-traditional banking
products and services.
For the last two weeks, we have been examining the history of
banking in the Philippines. In this article, we will focus on the
development of financial and legal reforms in the country.
The Bangko Sentral ng Pilipinas' "The General Banking Law
Annotated: Book 2" identified the year 1949 as "a turning point
in the monetary history of the Philippines"
It marked the beginning of the country's "post-independence
monetary history" with the 1948 enactment of the Charter of the
Central Bank of the Philippines-setting into motion the operation
of the country's monetary authority.
It would also be important to note that the General Banking Act
(GBA) became effective on the same day that the Central Bank
started its operations on January 3, 1949. For the first time,
explicit rules and regulations governing bank organization and
operations were laid down.
The GBA prescribed rules covering the establishment of
domestic banks, the licensing of foreign banks, and the powers
of banking institutions, branches and agencies of foreign banks.
Another major banking statute, the Rural Banks Act, was
enacted in 1952. Two years later, the Agricultural and Industrial
Bank merged with the Reconstruction and Rehabilitation Fund
to form the Development Bank of the Philippines (DBP).
During this period, the Central Bank was actively engaged in the
establishment of development banks. It also provided rural
banks with 100% counterpart financing for equity and access to
rediscounting facility at highly subsidized terms.
Another major piece of legislation enacted under the Philippine
Republic was the Law on Secrecy of Bank Deposits, which
discouraged private hoarding by encouraging the public to
deposit their money in banking institutions.
By the 1960s, the ability of banks to mobilize funds via deposit
accounts was constrained primarily by relatively low yields of
these instruments. This was because of regulations imposed
upon traditional deposit accounts, including the reserve
requirement, ceilings on interest rates, and taxes.
In response to the growing corporate demand for funds, a small
number of non-bank financial institutions started trading short-
term instruments of banks. The banks followed suit by issuing
unregulated short-dated instruments such as repurchase
agreements, certificates of assignment, certificates of
participation, and dealer promissory notes-collectively known as
deposit substitutes.
It was during this time that the trust fund management services
were first offered by commercial banks.
Another significant law, which created the Philippine Deposit
Insurance Commission (PDIC), was passed in 1963.
In the 1970s, the Central Bank imposed prudential measures.
Within this decade, banks widened their market by extending
trust business services to corporations and individuals with high
net worth.
2
The system, however, had relatively limited access in attracting
investors to channel their excess funds to foreign currency
deposit units due to strict foreign exchange regulations.
In 1971, the Joint International Monetary Fund-Central Bank of
the Philippines Banking Survey Commission was created. The
Commission studied the banking system and proposed several
measures that resulted in the promulgation of Presidential
Decree Nos. 71 (amending the General Banking Act) and 72
(amending the Central Bank Act).
In the 1980s, the Central Bank issued rules creating investment
management accounts that did not qualify as trust accounts. The
new regulation encouraged the trust department to introduce a
new financial product called the common trust fund.
It was in this decade that universal banking was introduced in
the country. This system was adopted by the Central Bank upon
the recommendation of the World Bank-to enable certain banks
to invest in allied and non-allied undertakings while engaging in
commercial banking functions.
A significant circular issued by the Central Bank in the 1980s
was Circular No. 905 (issued in 1983), which lifted the interest
rate ceilings imposed by the Usury Law.
For the past three weeks, we have been examining the history
of banking in the Philippines. In this final article, we will focus on
the development of financial and legal reforms in the country in
the last two decades.
According to the Bangko Sentral ng Pilipinas’ “The General
Banking Law Annotated: Book 2,” the financial innovations that
were introduced in the Philippines can be divided into three
episodes:
Banking innovations prior to the 1990s.
Institutional changes in the 1990s: classified into foreign
exchange liberalization, financial liberalization, and the passage
of the General Banking Law of 2000.
After the year 2000: the emergence of non-traditional banking
products and services.
In 1992, the Bankers’ Association of the Philippines created the
Philippine Dealing System (PDS). The PDS linked bank
participants through an electronic screen-based network that
enabled information sharing and the undertaking of foreign
exchange transactions.
The same year, the Rural Banks Act of 1992 repealed Republic
Act 720, as amended. The Rural Banks Act was passed to
encourage and assist in the establishment of a rural banking
system that would make credit available and readily accessible
in the rural areas on reasonable terms.
On July 3, 1993, pursuant to its constitutional mandate to
establish an independent central monetary authority, Congress
passed House Bill No. 7037 and Senate Bill No. 1235, which
were later signed into law as Republic Act 7653, the New Central
Bank Act.
The law created the Bangko Sentral ng Pilipinas with the
primordial responsibility to administer the monetary and banking
system.
The same law declared that all powers, duties and functions
vested by law in the Central Bank of the Philippines that not
inconsistent with the provisions of Republic Act No. 7653, are
deemed transferred to the Bangko Sentral ng Pilipinas.
Another significant legislation, Republic Act 7721, An Act
Liberalizing the Entry of Foreign Banks in the Philippines, was

enacted in 1994.
The law liberalized the participation of foreign banks in the local
banking system. From only four foreign banks in the country in
1994, the number soon grew to 18 head offices and subsidiaries.
Several important developments occurred during this decade,
like the discontinuation of Bangko Sentral development lending
and the relaxation of rules on bank entry and branching.
Interest payments were also allowed on demand deposits and
banks began to innovate in the area of deposits offered — an
example would be the offering of savings discounts with life
insurance included.
In 1995, the Thrift Banks Act was enacted to meet the needs for
capital, or personal and investment credit or medium- and long-
term for Filipino entrepreneurs. At the same time, the law placed
medium- and long-term credit facilities (at reasonable cost)
within the Filipino people’s easy reach.
On April 12, 2000, Republic Act 8791, the General Banking Law
of 2000, was enacted — repealing the 52-year-old banking law.
The passage of the General Banking Law of 2000 strengthened
the Bangko Sentral’s policy agenda and institutionalized banking
reforms in the Philippines.
History of philippine banking ( and kinds of checks )
1. 1. History of Philippine Banking Obras Pias A charity
foundation by laymen used for charity works and religious
activities. It became a banking institution run by the friars.
2. 2. Rodriguez Bank • One of the first banks to emerge in
the 19th century. It was more of a loan association than a
modern bank.
3. 3. British-Orient Bank • Expanded the Philippine-
European trade following the opening of the Suez Canal.
4. 4. Suez Canal
5. 5. HSBC • Established its branch in Manila in 1872.
6. 6. Monte de Piedad • First mutual savings established in
1882 • A Spanish Franciscan friar Felix Huertas was the
prime mover in convincing the Archbishop of Manila and
the Governor-General to establish a bank especially for
the poor. • The original name in Spanish was Monte de
Piedad y Caja de Ahorros. • It was bank and a pawnshop.
7. 7. • 1994 closed and re-opened as Keppel Bank • 2005
bought and renamed by GE
8. 8. • Established 1851, it was the first state bank. • It was
renamed Bank of the Philippine Island in 1912 Banco
Espanol-Filipinas de Isabel II
9. 9. BPI issued first paper notes
10. 10. Philippine National Bank • First agricultural bank,
established in 1916 • PNB has also functioned as the de
facto Central Bank of the Philippines until 1949. It was
given the special power to issue circulating notes • The
first universal bank in the Philippines (1980)
11. 11. Bangko Sentral Ng Pilipinas • Established in 1949
12. 12. Notes on the BSP • The BSP actually started out as
the Central bank of the Philippines established in January
3
3, 1949 as the Philippines’ Central Monetary Authority. •
In accordance with the pursuant of the 1987 constitution,
the Central Bank of the Philippines was re-chartered in
July 3, 1993 and was renamed as the Bangko Sentral ng
Pilipinas. • The BSP’s primary objective is to maintain
price stability, financial stability and economic stability. •
Main functions of the BSP: 1. Liquidity management. The
BSP is responsible for liquidity management by
formulating and implementing monetary policy aimed to
influence the supply of money. The BSP may decide to
contract or expand the economy. Consistent with its
primary objective the BSP stands on its three pillars: price
stability, financial stability, and economic stability. 2.
Lender of last resort. The BSP is also the lender of last
resort to banks facing bankruptcy. 3. Currency Issue. The
BSP has the exclusive power to issue the national
currency. 4. Financial Supervision. The BSP supervises
banks and exercises regulatory powers over non- bank
institutions performing quasi-banking functions. • The
current BSP is headed by the BSP Governor Mr. Amando
M. Tetangco Jr.
13. 13. Functions of a Commercial Bank • Collection function
• Paying function • Loaning function • Receiving function •
Trust
14. 14. Kinds of Deposits • As to source: • A. Private • B.
Government • As to withdrawals: • A. Demand deposit • B.
Savings deposit • C. Time deposit
15. 15. Kinds of Accounts • Individual account • Survivorship
account • Joint account • Partnership or Corporation
account
16. 16. Checks • A written order to a bank from the depositor
to pay the bearer an amount of money.
17. 17. Open Check • Pay to Order
18. 18. • Pay to Bearer
19. 19. • Crossed Check
20. 20. • Certified Check
21. 21. • Manager’s Check
22. 22. • Traveler’s Check
23. 23. • Overdraft Check • DAIF • DAUD
24. 24. • Bouncing Check
25. 25. • Stale-dated Check
26. 26. • Post-dated Check
27. 27. Write me as check
28. 28. Uses of a Check • Safety and convenience • Stop
Payment • For odd amounts • As a receipt • For large
amounts