Cavite State University

BASIC FINANCE
Philippine Financial System

October 4, 2014

What is your Financial Goal?

Financial Decision by
Individuals
Wealth Protection

Wealth Accumulation
Wealth Distribution

Requisites of a Financial
Goal
Specific
Measurable
Attainable
Realistic
Time-Bounded

Policy Makers
Pass laws
and make
decisions
relating to
fiscal and
monetary
policies

Branches of Government
Law making body - Legislative
Law enforcing body Executive
Law interpreting body Judicial
Political Parties / Party Lists
Monitoring body Ombudsman

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Monetary System
Create and
Transfer
money

Philippine Central Bank

Objective is to controls, regulates, maintain
stability and economic growth
Functions:
o
o
o
o
o
o
o

Liquidity Management
Currency Issue
Lender of Last Resort
Financial Supervision
Management of Foreign Currency Reserves
Determination of Exchange Rate Policy
Other Activities (Functions as the banker,
financial advisor and official depository of the
Government)

Monetary System
Securities and Exchange Commission
Its major functions includes registration of securities, analysis
of every registered security, evaluation of the financial
condition and operations of applicants for security issue.
Supervision over all registered business entities in the country,
including suspensions and revocations of their registrations
Policymaking with regards to the securities in the market
Control over and approval of security registration statements
Power to investigate violations of securities laws and to impose
sanctions for such violations
Power to issue subpoenas, punish for contempt, and issue
cease and desist orders in furtherance of its law enforcement
mission
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Financial Institution
Accumulat
e,
Lend/invest
savings

Compone
nts

Components of the Financial

Institutions
1.
2.
3.
4.
5.
6.
7.
8.
9.

Thrift Banks
Commercial Banks
Universal Banks
Rural Banks
Specialized Government Banks
Private Non-Bank Financial Intermediaries
Government Non-Bank Financial Intermediaries
Non-Bank Thrift Institutions
External Sector
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Thrift Banks

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Commercial Banks

In addition to having the powers of a thrift bank, a commercial bank has

the power to:
o
accept drafts and issue letters of credit;
o
discount and negotiate promissory notes, drafts, bills of
exchange, and other evidences of debt;
o
accept or create demand deposits;
o
receive other types of deposits and deposit substitutes;
o
buy and sell foreign exchange and gold or silver bullion;
o
acquire marketable bonds and other debt securities; and
o
extend credit.

This could be:

Private Domestic

Private Foreign

Government Controlled

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Universal Banks

Have the same powers as commercial banks with the

following additional powers:
o
o

The power of an investment house as provided in

existing laws
The power to invest in non-allied enterprises.

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Rural Banks

Rural and cooperative banks are the more popular

type of banks in the rural communities. Their role is
to promote and expand the rural economy in an
orderly and effective manner by providing the people
in the rural communities with basic financial
services. Rural and cooperative banks help farmers
through the stages of production, from buying
seedlings to marketing of their produce. Rural banks
and cooperative banks are differentiated from each
other by ownership. While rural banks are privately
owned and managed, cooperative banks are
organized/owned by cooperatives or federation of
cooperatives.

Rural Banks

Have the power to provide adequate credit facilities

to farmers and merchants or to cooperatives of such
farmers and merchants and, in general, to the people
of the rural communities of which the rural bank
operates in.

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Specialized Government
Banks

These
are
completely
government-owned
institutions established mainly to provide medium
and long-term credits to the industrial, agricultural
and real estate sectors of the economy.
Example:
Development Bank of the Philippines
Land Bank
Philippine Amanah Bank
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Private Non-Bank Financial

Intermediaries

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Government Non-Bank Financial

Intermediaries

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Non-Bank Thrift Institutions

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External Sectors

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Financial Markets
Markets
and
Facilitates
the
transfer of
Financial
Assets

Financial Markets
Classified into the money market and the capital market.
Money market is where short-term funds are raised through the
buying and selling of short term debt securities such as commercial
papers.
Capital market is where long-term funds are raised through the
bond market, which deals with long-term debt securities such as
bonds, the stock market which deals with equity securities or stocks

Players in the Financial

Markets
Investors are the ones who buy and sell securities in the hope of receiving
dividend income and making a profit through capital appreciation. These
buyers and sellers are not the only players in the stock market. Other
persons or institutions ensure that the stock market is a readily accessible,
efficient, orderly and transparent market. These are:
Stockbroker
Anyone who wishes to buy shares of stocks or bonds must have a
stockbroker. He acts as an agent or middleman between the investor and
other buyers/sellers. As an intermediary, the stockbroker executes orders
for clients, purchasing or selling the stocks on the stock exchange. He is
the only person or corporation authorized and licensed by the Securities
and Exchange Commission to trade in securities. They are commonly
known as members, member-brokers, or member-firms of the Philippine
Stock Exchange.

Players in the Financial

Markets
Stock exchange
This is the organization that oversees the transactions of the buyers and sellers
placed through the member-brokers. Its professional management ensures that the
market is efficient, fair, transparent and orderly by enforcing its rules and regulations.
Transfer agent
When shares are purchased and transferred from the seller to the buyer, the
transaction should be recorded in the stock books of every listed company which
record the complete shareholdings of each stockholder of the company. But most
companies have his record keeping done by a separate agency, called the transfer
agent. Thus, when a transaction has been done, the details are kept in a ledger or
record book by the companys transfer agent. As such, the transfer agents maintains
the ledgers for each issuer company showing the name and address of, and the
number of shares held by each registered stockholder. Another function of a transfer
agent, which is either a commercial bank or trust company, is to cancel old
certificates, issue new certificates and change the name of the certificates into the
buyers name when the shares have been sold.

Players in the Financial

Markets
Clearing House
When a transaction has been made, the seller through his stockbroker has to deliver the
stock certificate to the buyer who in turn orders his stockbroker to pay for the shares
purchased. This seems to be an easy process. But considering the thousands of transactions
executed everyday and the nearly 200 stockbrokers involved, broker-to-broker payments and
delivery of certificates would become complicated. To facilitate transactions and make the
market more orderly, all payments by all stockbrokers are done to a centralized institution,
called the clearinghouse. Thus, all stockbrokers will make payments to and receive payments
from the clearinghouse for purchases and sales they have made for their clients. At the same
time, all stock certificates will be delivered to and obtained from this central institution.
Listed company
A corporation that offers and lists its shares in the stock exchange is called a listed company
or issuer. A listed company is also known as a publicly owned company in view of the fact that
its shares were sold to the investing public. These are the companies that raised their
required funds through such issuance of securities to the public. The capital raised provides
the company with the necessary funds to be invested in business facilities and equipment. An
issuing company becomes a listed company, whose shares are traded in the stock market,
after it has met the strict listing requirements imposed by the stock exchange.

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