Chapter No. 3Depository Institutions

DEPOSITORY INSTITUTIONS: ACTIVITIES AND CHARACTERISTICS

Professor: Genese Mariel S. Chua, MBA, RCA, MICB

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Learning Objectives:

Describe depository institutions. Discuss the asset/liability problem faced by

depository institutions. Explain how depository institutions generates

income. Differentiate commercial banks from savings

and loan associations, savings bank and credit unions.

Discuss the asset/liability problems faced by all depository institutions.

Explain the risk faced by depository institution.

Name the funding sources available to commercial and thrift banks.

Recognize the value of discernment.2

Asset/Liability Problem

A financial institution that obtains its funds mainly through deposits from the public. These includes commercial banks, savings and loan associations, savings bank and credit unions.

Deposit – represents the liabilities (debt) of the deposit accepting institution.

Their income is derived in two sources:

1.Income generated from the loans they make and The securities they purchase

2.Fee Income

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Depository Institutions

Asset/Liability Problem

S&L’s (Savings and Loan Associations), savings bank and credit union are also known as “Thrifts” which are specialized types of depository institutions.

The Philippines has a comprehensive banking system encompassing various types of banks, from large universal banks to small rural banks and even non-banks, all licensed with the Banko Sentral ng Pilipinas under Republic Act No.8791 also known as the General Banking Act of 2000.

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Depository Institutions

Asset/Liability Problem

As at 17 February 2014,there were

36 universal and commercial banks,

71 thrift banks

533 rural banks,

40 credit unions

6,267 non-banks with quasi-banking functions,

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How many banks are there in the Philippines

Reference: Chipongian, Lee (12 February 2014). "Total bank resources grow 24% to P10.423 trillion in 2013 – BSP | Manila Bulletin | Latest Breaking News | News Philippines". Manila Bulletin. Retrieved 14 April 2014.

Asset/Liability Problem

A depository institution seeks to earn a positive spread between the assets in which it invests (loans and securities) and the cost of its funds (deposits and other sources). This spread is referred to as spread income or margin.

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Asset/Liability Problem of Depository Institutions

Asset/Liability Problem

Spread Income

Types of Risk Credit Risk Regulatory Risk Interest Rate Risk/Funding Risk

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Funding Risks

Liquidity Concerns

Ways to accommodate withdrawals and loan demandAttract additional depositsUse currently-owned securities as collateral for loans from other institutionsRaise short-term funds in the money marketSell currently-owned securities

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Liquidity Concerns

Liquidity Concerns

Depository Institutions are heavily regulated. The risks that regulators are concerned about depository institutions can be classified as follows:Credit RiskSettlement RiskMarket Risk (value-at-risk)Liquidity RiskOperational RiskLegal Risk

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Concerns of Regulators

Depository Institutions

Commercial Banks

Savings and Loan Associations

Savings Banks

Credit Unions

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Depository Institutions

Depository Institutions

Commercial Banks are institutions which individuals or firms may consider as sources for short-term financing. This is an institution that accepts or creates demand deposits subject to withdrawal by check. This is a bank that provides checking account, savings account and money market account and that accepts time deposits.

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Commercial Banks

Depository InstitutionsA commercial bank shall have, in addition to the general powers incident to corporations, all such powers as may be necessary to carry on the business of commercial banking such as accepting drafts and issuing letters of credit; discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and extending credit, subject to such rules as the Monetary Board may promulgate. These rules may include the determination of bonds and other debt securities eligible for investment, the maturities and aggregate amount of such investment

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Powers of a Commercial Bank (PDIC)Commercial Banks Activities

Depository InstitutionsA commercial bank may, subject to the conditions stated in the succeeding paragraphs, invest only in the equities of allied enterprises as may be determined by the Monetary Board. Allied enterprises may either be financial or non-financial.

Except as the Monetary Board may otherwise prescribe:

The total investment in equities of allied enterprises shall not exceed thirty-five percent (35%) of the net worth of the bark; and

The equity investment in any one enterprise shall not exceed twenty-five percent (25%) of tile net worth of the bank.

The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which shall promulgate appropriate guidelines to govern such investment.

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Equity Investments of a Commercial Bank.

Depository InstitutionsA commercial bank may own up to one hundred percent (100%) of the equity of a thrift bank or a rural bank.

Where the equity investment of a commercial bank is in other financial allied enterprises, including another commercial bank, such investment shall remain a minority holding in that enterprise

Equity Investments of a Commercial Bank in Non-Financial Allied Enterprises. - A commercial bank may own up to one hundred percent (100%) of the equity in a non-financial allied enterprise.

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Equity Investments of a Commercial Bank in Financial

All ied Enterprises.

Commercial Banks

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Commercial Banks in the Philippines

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Top 10 Best Bank in the Philippines as to Assets

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Top 10 Best Bank in the Philippines as to Deposits

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10 Best Bank in the Philippines as to Loans

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Top 10 Best Bank in the Philippines as to Capital

Top 30 Largest Banks

2020

Top 3 Best Bank in the Philippines

1. BDO (Banco de Oro)

2. Metrobank

3. BPI (Bank of the Philippine Islands)

Depository Institutions

Hereinafter called the association shall include any corporation engaged in the business for accumulating the savings of its members or stockholders, and using such accumulations, together with its capital in the case of a stock corporation, for loans and/or for investment in the securities of productive enterprises or in securities of the Government, or any of its political subdivisions, instrumentalities or corporations: Provided, That they shall be primarily engaged in servicing the needs of households by providing personal finance and long-term financing for home building and development.

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Savings and Loan Association

Depository Institutions

A savings and loan association shall be organized either as a stock or non-stock corporation

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Organization of savings and loan association

The Monetary Board shall fix the minimum paid-up capital of a savings and loan association organized as a stock corporation in such amount as said Board may consider necessary for the safe and sound operation of such association: In this connection, the paid-up capital be less than one hundred thousand pesos and at least 70% of the voting stock of a savings and loan association which may be established after the approval of this Act shall be owned by citizens of the Philippines, except where a new association is established as a result of the consolidation of existing associations in which there are foreign-owned voting stocks at the time of consolidation.

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Regarding a savings and loan association organized as a non-stock corporation shall confine its membership to a well-defined group of persons and shall not transact business with the general public. It shall accept deposits from, and grant loans to, only its member-depositors.

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Depository Institutions

any corporation organized for the purpose of accumulating the small savings of depositors and investing them, together with its capital, in bonds or in loans secured by bonds, real estate mortgage, and other forms of security, as hereinafter provided, or in loans for personal finance and long-term financing for home building and home development.

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Savings Bank

Depository Institutions1. Malayan Bank

2. Banco Filipino

3. PsBank

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List of Savings Bank in the Phil ippines

Depository InstitutionsCredit Unions(CUs) are internationally understood as Thrift, Savings, and Loans Associations.Credit unions are the smallest of the depository institutions.

Member-owned financial co-operative. These institutions are created and operated by its members and profits are shared amongst the owners.

As soon as you deposit funds into a credit union account, you become a partial owner and participate in the union's profitability. Credit unions are formed by large corporations and organizations for their employees and members.

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Credit Unions

Depository Institutions1. ACDI Credit Cooperative

2. MSU IIT National Multi Purpose Cooperative

3. Advance Credit Corporation

4. Global Resource Credit Co. Inc.

5. A+ Credit Corporation

6. Agricultural Service Credit

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List of Credit Union in the Phil ippines

THRIFT BANKING SYSTEM

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.

Depository Institutions

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List of Thrift Banks

RURAL & COOPERATIVE 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.