2. 1
Discuss the financial system
2
Objectives
Identify the elements of a financial system and
differentiate bonds from stocks.
3. Questions
What is the importance of financial
system in the business setting?
What are the elements of the
financial system and how they are
interrelated?
What is the difference between a
stock and a bond?
4. THEFINACIALSYSTEM
The financial system at the societal environment or
regional level is principally responsible for the flow of
money or funds from the lender to the borrower. The
financial system controls, regulates, and facilitates
the saving, borrowing, lending, and investing
activities happening among the different players in
the system.
5. THEFINACIALSYSTEM
A financial system is a set of institutions, such as
banks, insurance companies, and stock exchanges
that permit the exchange of funds. Financial systems
exist on firm, regional, and global levels. Borrowers,
lenders, and investors exchange current funds to
finance projects, either for consumption or productive
investments, and to pursue a return on their financial
assets. The financial system also includes sets of rules
and practices that borrowers and lenders use to decide
which projects get financed, who finances projects, and
terms of financial deals.
6. THEFINACIALSYSTEM
In the Philippines financial system, the government
plays an active role in the flow of money in the
economy through the Bangko Sentral ng Pilipinas
(BSP). The BSP regulates the operations of financial
institutions and financial intermediaries.
Financial Markets Financial Instruments
Financial Institutions
Elements of a Financial
System
Lenders and borrowers
7. FINANCIAL
INSTITUTIONS
Back to Agenda
People commonly equate financial institutions with banks.
However, the term does not simply refer to banks.
A financial institution (FI) is a company engaged in the
business of dealing with financial and monetary transactions
such as deposits, loans, investments, and currency
exchange.
Financial institutions encompass a broad range of business
operations within the financial services sector including
banks, trust companies, insurance companies, brokerage
firms, and investment dealers.
8. FINANCIAL
INSTITUTIONS
Virtually everyone living in a developed economy has an
ongoing or at least periodic need for the services of financial
institutions.
Financial institutions are institutions or organizations that
provide financial services, among others, in the form of loan,
credit, fund administration, financing, depository, and
safekeeping.
Depository Institutions Investments Institutions
Financial Intermediaries
Financial
Institutions
Financial institutions, based on the financial services
provided, are generally classified as follows:
9. Depository
Institutions
Depository institutions are financial institutions that
accept deposits (savings, current, and time deposits)
from individuals and corporate entities, extend loans to
borrowers, transfer funds, and manage funds for
investment purposes.
Depository institutions include the following:
Banks Trust
companies
Savings and loans
association
Depository Institutions
Credit
unions
10. Banks
Banks are institutions authorized to operate and regulated by the
BSP under the General Banking Law of 2000. They accept deposits
and bill payment, provide loans, and facilitate the transfer of funds
domestically or abroad.
an organization that holds money belonging to others, investing an
d lending it to get more money, or the building in which
the organization is situated.
A bank is a financial institution licensed to receive deposits and
make loans. Banks may also provide financial services, such as
wealth management, currency exchange, and safe deposit boxes.
Under BSP Circular No. 271, the major classifications of
banks operating in the Philippines are as follows:
11. Banks
Under BSP Circular No. 271, the major classifications of
banks operating in the Philippines are as follows:
BANKS
Universal bank
Commercial bank
Thrift bank
Rural bank and cooperative bank
Islamic Bank
Savings and Loans Association
Trust Companies
Credit Unions
12. Universal bank
A universal bank is considered the biggest bank in terms of
assets, loan portfolio, and revenue.
Under the new rule, universal banks with more than 100
branches would need to have at least P20 billion in capital.
Commercial banks with more than 100 branches would need
P15 billion.
According to Bangko Sentral, there are 21 universal banks with active operations
in the Philippines as of March 2018. These banks are the following:
Land Bank of the Philippines
Australia and New Zealand Banking Group Limited
Deutsche Bank AG
ING Bank N.V.
Mitzuho Bank, Ltd. – Manila Branch
Standard Chartered Bank
The Hongkong & Shanghai Banking Corporation
Asia United Bank Corporation
13. Commercial bank
It is a type of bank that provides commercial loans and offers
investment products in addition to the regular banking service of
accepting deposits. Compared to a universal bank is has more
limited banking services.
Commercial banks are privately-owned institutions that accept
deposits and lend money to projects to earn interest. They also offer
personal, business, and mortgage loans, checking account services,
and basic financial products like savings accounts and certificate of
deposit to individuals and businesses. They are primarily owned by
shareholders and are profit-based.
14. Commercial bank
As of March 2018, 22 commercial banks are in operation in the
Philippines and they are listed below:
• Bank of Commerce
• BDO Private Bank, Inc.
• Philippine Bank of Communications
• Philippine Veterans Bank
• Robinsons Bank Corporation
• CTBC Bank (Philippines) Corporation
• Maybank Philippines, Incorporated
• Bangkok Bank Public Co. Ltd.
• Bank of America, N.A.
• Bank of China Limited – Manila Branch
• Citibank, N.A.
• JP Morgan Chase Bank, N.A.
• KEB Hana Bank – Manila Branch
15. Commercial bank
As of March 2018, 22 commercial banks are in operation in the
Philippines and they are listed below:
• Bank of Commerce
• BDO Private Bank, Inc.
• Philippine Bank of Communications
• Philippine Veterans Bank
• Robinsons Bank Corporation
• CTBC Bank (Philippines) Corporation
• Maybank Philippines, Incorporated
• Bangkok Bank Public Co. Ltd.
• Bank of America, N.A.
• Bank of China Limited – Manila Branch
• Citibank, N.A.
• JP Morgan Chase Bank, N.A.
• KEB Hana Bank – Manila Branch
16. Thrift bank
Thrift bank, as defined in Republic Act No. 7906, include
savings and mortgage banks, private development banks, and
stock savings, loan associations, and microfinance thrift banks
that are organized under existing laws for the following
purposes:
a. Accumulating and investing the savings of depositors
b. Providing working capital to businesses engaged in
agriculture, service and housing
c. Providing diversified financial services to individuals and
small and medium enterprises
18. Rural bank and cooperative bank
Rural and cooperative banks are organized and operating in rural areas.
They are intended to promote and expand the rural economy by providing
the people with the basic financial services.
They differ in type of ownership.
Rural banks are owned and managed by private entities or individuals.
Cooperative banks are owned, organized and managed by cooperatives or
federation of cooperatives.
The primary target markets of rural and cooperative banks are farmers
who need financial help in the production and marketing of agricultural
products. Rural and cooperative banks are also engaged in micro
financing to assist small individual entrepreneurs.
19. Rural bank and cooperative bank
TOP 50 RURAL BANKS — THE BILLIONAIRE RURAL
BANKS! — AS OF MARCH 31, 2023
Bank Total Asset
1 BDO Network Bank 91.72 B
2 East West Rural Bank 29.14 B
3 Card Bank (A MF RB) 2 3.35 B
4 SeaBank Philippines 13.28 B
5 Guagua Rural Bank 7.76 B
6 Cebuana Lhuillier 6.53 B
7 Card MRI Rizal Bank 6.28 B
8 Agribusiness Rural Bank 4.94 B
9 BOF Inc. Rural Bank 4.80 B
10 FicoBank 4.68 B
20. Islamic bank
The Islamic bank, which has been created and
organized under R.A. No. 6848, aims to promote and
accelerate the socio-economic development of the
Autonomous Region of Muslim Mindanao by performing
banking, financing, and investment operations and to
establish and participate in agricultural, and industrial
ventures based on the Islamic concept of banking.
All business dealings and activities of the Islamic Bank
are subject to the basic principles and rulings of Islamic
Sharia/Sharia’h Law.
21. Islamic bank
Islamic banking is a banking system that is based on the
principles of Islamic or Shari’ah law and guided by Islamic
economics. Two fundamental principles of Islamic banking are
the sharing of profit and loss, and the prohibition of the
collection and payment of interest by lenders and investors.
Islamic law prohibits collecting interest or riba. Islamic banks
make a profit through equity participation, which requires a
borrower to give the bank a share in their profits rather than
paying interest.
Currently, the country has only one Islamic bank, Al Amanah
Islamic Investment Bank of the Philippines. A subsidiary of the
state-owned Development Bank of the Philippines, AAIIBP had
total assets of P797.3 million at the end of last year.
22. Savings and Loans Association
A savings and loan association, sometime referred to as a
financing and mortgage loan company, is a financial institution
that is engaged in the business of accumulating the savings of
its members and stockholders, and using accumulations for
loans or investments in securities of productive enterprises.
The savings and loans association, which can be stock or non-
stock, is created and regulated under R.A No. 3779, as
amended by R.A. No. 4378.
The unique feature of the financing and mortgage loan
Company is that the depositors are also the member-borrowers
of the association. In case the financing and mortgage loan
company is a stock, corporation, the members have voting
rights and may control the association’s operation.
23. Trust companies
A trust company is a legal business entity, usually a major
division of a universal or commercial bank that acts as a
fiduciary agent or trustee on behalf of an individual person or
corporate entity for the purpose of management, administration,
and final transfer of property to the beneficiary.
24. Trust companies
In other words, the trust company acts as the custodian of the
property for and on behalf of the beneficiary for a fee. It also
performs the following related custodial tasks:
a. Asset management
b. Ownership registration for the beneficiary
c. Stock transfer
d. Custodial arrangement like in court proceedings
A trust company may also be appointed as the administrator of
the properties of a decedent when indicated in the last will and
testament. In this case, the trust company is responsible for the
distribution of the net estate to the beneficiary after accounting
and paying all debts and taxes.
25. Credit Unions
A credit union is a financial depository institution that is mainly
controlled and operated by its members for the following
purposes:
a. Extending credit to members
b. Offering competitive interest rates
c. Promoting the concept of thrift
d. Providing other types of financial services
26. Credit Unions
Credit unions, on the other hand, are not-for-profit institutions.
Technically, credit unions are owned by their account holders,
known as members. Any profit earned by a credit union is either
invested back into the organization or paid out to members as a
dividend [source: Federal Reserve].
Credit unions were designed to be cooperative financial
institutions for people who share a common bond. Members of a
credit union may work for the same company or organization,
attend the same college, serve in the armed forces, belong to
the same church or live in the same community.
27. Financial
Intermediaries
A financial intermediary is a type of financial
institution that acts as the middleperson
between two parties – the investors and
borrowers. Financial intermediaries raise and
accumulate money from investors and offer
the accumulated money to individuals or
corporate entities in need of financial
assistance.
The concept of financial
intermediaries is very broad. It
includes all types of financial
institutions that receive money
from one party and offer it to
another as financial aid. They
include banks, insurance
companies, brokerage and
investment houses, broker-
dealer, mutual funds, and
pension funds. In the strict
sense, financial intermediaries
do not have depository
functions similar to banks and
other institutions though some
have a wide range of financial
services.
28. Hence, financial intermediaries refer
to the following:
Mutual funds
Mutual funds accumulate money by selling shares of stocks or
bond of publicly-listed corporations to individuals or corporate
investors.
The funds from the proceeds of the sale are pooled together and
channeled to the borrowers.
A mutual fund is a type of financial vehicle made up of a pool of
money collected from many investors to invest in securities like
stocks, bonds, money market instruments, and other assets.
Mutual funds are operated by professional money managers,
who allocate the fund's assets and attempt to produce capital
gains or income for the fund's investors. A mutual fund's portfolio
is structured and maintained to match the investment objectives
stated in its prospectus.
Mutual funds let you pool
your money with other
investors to "mutually" buy
stocks, bonds, and other
investments. They're run by
professional money
managers who decide which
securities to buy (stocks,
bonds, etc.) and when to
sell them. You get exposure
to all the investments in the
fund and any income they
generate.
29. Hence, financial intermediaries refer
to the following:
Pension funds
A pension fund is set up by a business for the purpose of paying
the pension requirements of all private-sector employees who
retire from the business organization upon reaching their
retirement age.
The pension fund represents the compulsory contributions of the
employer or the combined contributions of the employer and the
employees depending on the type of pension plan. This fund,
under the administrations of t trustee, may be invested in
financial securities like bonds, stocks, treasury shares, or any
high-yield investment.
30. Hence, financial intermediaries refer
to the following:
Insurance
companies
An insurance company acts as a financial intermediary by
pooling together the proceeds of insurance policies sold
to the public and investing the accumulated funds in high-
yield maturing securities from investment houses.
Most of the money accumulated by insurance companies
from insurance premiums is lent in either medium- 0r
long-term loan to companies engaged in commercial real
estate
31. Seven Types of Insurance
Life Insurance or Personal Insurance
• Life Insurance is different from other insurance in the sense that, here, the subject
matter of insurance is the life of a human being.
• The insurer will pay the fixed amount of insurance at the time of death or at the expiry
of a certain period.
• At present, life insurance enjoys maximum scope because life is the most important
property of an individual.
• Each and every person requires insurance.
• This insurance provides protection to the family at the premature death or gives an
adequate amount at the old age when earning capacities are reduced.
• Under personal insurance, a payment is made at the accident.
• The insurance is not only a protection but is a sort of investment because a certain
sum is returnable to the insured at the death or the expiry of a period.
32. Seven Types of Insurance
Property Insurance.
• Under the property insurance property of person/persons are insured against a certain
specified risk. The risk may be fire or marine perils, theft of property or goods damage
to property at the accident.
33. Seven Types of Insurance
Marine Insurance.
• Marine insurance provides protection against the loss of marine perils.
• The marine perils are; collision with a rock or ship, attacks by enemies, fire,
and captured by pirates, etc. these perils cause damage, destruction or
disappearance of the ship and cargo and non-payment of freight.
• So, marine insurance insures ship (Hull), cargo and freight.
• Previously only certain nominal risks were insured but now the scope of
marine insurance had been divided into two parts; Ocean Marine Insurance
and Inland Marine Insurance.
• The former insures only the marine perils while the latter covers inland perils
which may arise with the delivery of cargo (gods) from the go-down of the
insured and may extend up to the receipt of the cargo by the buyer (importer)
at his go down.
34. Seven Types of Insurance
Fire Insurance.
• Fire Insurance covers the risk of fire.
• In the absence of fire insurance, the fire waste will increase not only
to the individual but to the society as well.
• The individual is preferred from such losses and his property or
business or industry will remain approximately in the same position in
which it was before the loss.
• The fire insurance does not protect only losses but it provides certain
consequential losses also war risk, turmoil, riots, etc. can be insured
under this insurance, too.
35. Seven Types of Insurance
Liability Insurance.
The general Insurance also includes liability insurance whereby
the insured is liable to pay the damage of property or to
compensate for the loss of persona; injury or death.
This insurance is seen in the form of fidelity insurance,
automobile insurance, and machine insurance, etc.
36. Seven Types of Insurance
Guarantee Insurance.
.
The guarantee insurance covers the loss arising due to
dishonesty, disappearance, and disloyalty of the employees or
second party. The party must be a party to the contract.
His failure causes loss to the first party.
For example, in export insurance, the insurer will compensate
the loss at the failure of the importers to pay the amount of debt.
37. Seven Types of Insurance
Social Insurance.
The social insurance is to provide protection to the weaker
sections of the society who are unable to pay the premium for
adequate insurance.
Pension plans, disability benefits, unemployment benefits,
sickness insurance, and industrial insurance are the various
forms of social insurance.
38. Our Market 10 Billion
1 Billion
5 Billion
Total Available Market (TAM):
10 Billion
Serviceable Available Market (SAM):
5 Billion
Serviceable Obtainable Market (SOM):
1 Billion
Back to Agenda
39. Back to Agenda
Financial Guidance
Briefly elaborate on what you want to discuss.
*Dollar amounts are in millions YOY change
Revenue
F Y '25
$ 000
F Y '26
$ 000 %
Expenses
Profit
Dividend/share
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