PHILIPPINE BANKING SYSTEM

The Philippine banking system is composed of universal and commercial banks, thrift banks, rural and cooperative banks.

Universal and commercial banks  represent the largest single group, resource-wise, of financial institutions in the country. They offer the widest variety of banking services among financial institutions. In addition to the function of an ordinary commercial bank, universal banks are also authorized to engage in underwriting and other functions of investment houses, and to invest in equities of non-allied undertakings.

The thrift banking system  is composed of savings and mortgage banks, private development banks, stock savings and loan associations and microfinance thrift banks. Thrift banks are engaged in accumulating savings of depositors and investing them. They also provide short-term working capital and medium- and long-term financing to businesses engaged in agriculture, services, industry and housing, and diversified financial and allied services, and to their chosen markets and constituencies, especially small- and medium- enterprises and individuals.

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.

Merger and consolidation was a major theme of the Philippine financial system during the first half of This came about as banks and non-banks alike sought ways to rapidly gain financial and marketing strength amid the growing competition in the Philippine financial system.

Merger is the absorption of one or more corporations by another existing corporation, which retains its identity and takes over the rights, privileges, franchises, and properties, and assumes all the liabilities and obligations of the absorbed corporation(s) in the same manner as if it had itself, incurred such liabilities or obligations. The absorbing corporation continues its existence while the life or lives of the other corporation(s) is/are terminated.

Consolidation is the union of two (2) or more corporations into a single new corporation, called the consolidated corporation, all the constituent corporations thereby ceasing to exist as separate entities. The consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities, franchises and properties, and assume all the liabilities and obligations of each of the constituent corporations in the same manner as if it had itself incurred such liabilities or obligations.

Philippine financial institutions positively responded to the call for greater vigilance over the stability of the system as a whole. They focused their operations toward strengthening their ability to serve as the first line of defense against financial crisis. The beefing up of reserves against losses remained a major strategy toward this end. Simultaneously, improvements in the front and back offices were also undertaken through the use of modern technology. This enabled them to not only provide better service to clients but also to enhance risk management.