COMMERCIAL BANKS IN

THE PHILIPPINES
AND
ITS FUNCTIONS
“BANKS” – entities engaged in the lending of funds in the form of deposits.

COMMERCIAL BANK

IT IS A FINANCIAL INSTITUTION THE

BORROWS (DEPOSIT) AND LENDS (LOAN)
MONEY.
 REPUBLIC ACT NO. 337 - AN ACT REGULATING BANKS AND
BANKING INSTITUTIONS AND FOR OTHER PURPOSES

CHAPTER IV
Commercial Banking Corporations

Section 20. A commercial banking corporation shall be any

corporation which accepts or creates demand deposits subject to
withdrawal by check.
FUNCTIONS OF COMMERCIAL BANK
PRIMARY
FUNCTIONS
• ACCEPTANCE OF DEPOSITS
• ADVANCING LOANS
• CREATION OF CREDIT
• PROMOTE THE USE OF CHEQUES
• FINANCING INTERNAL AND FOREIGN TRADE
• REMITTANCE OF FUNDS
THREE TYPES OF DEPOSITS
• CURRENT DEPOSITS - “Demand deposits”
- No interest is allowed

• SAVINGS DEPOSITS
- Money can be deposited at anytime but the
maximum cannot go beyond a certain limit.

• FIXED DEPOSITS – “Time Deposits”

- Cannot be withdrawn before the expiry of the period for which
they are deposited or without giving a prior notice for withdrawal.
Advancing Loans
• OVERDRAFT FACILITIES
-> The depositor is allowed to draw over and above his account up to the agreed limit.

• CASH CREDIT
-> The bank gives loans to the borrowers, but under emergency cash will be given.

• DISCOUNTING BILLS OF EXCHANGE

-> A bill of exchange represents a promise to pay a fixed amount of money at a specific point of time in future.

-> It is a paper asset signed by the debtor and the creditor for a fixed amount payable on a fixed date.

• MONEY AT CALL
-> “call money”

-> loans to be paid not exceeding seven days.

• TERM LOANS
-> Provides capital funds to the borrowers; maturity period varies from 1 - 10 years.

-> Sometimes, two or more banks may jointly provide large term loans to the borrowers – Participation loans or
Consortium finance

• CONSUMER CREDIT
-> for consumer goods or hospital bills; repayable in installment for a short period of time.
SECONDARY
FUNCTIONS
• AGENCY SERVICES

• GENERAL UTILITY SERVICES

AGENCY SERVICES
a) Collection and Payment of Credit Instruments
b) Purchase and Sale of Securities
c) Collection of Dividends on Shares
d) Acts as Correspondent
e) Income-tax Consultancy
f) Execution of Standing Orders
g) Acts as Trustee and Executor
GENERAL UTILITY SERVICES

a) Locker Facility

b) Traveler's Cheques and Credit Cards

c) Letter of Credit

d) Collection of Statistics

e) Gift Cheques
THE DEPOSIT FUNCTION
WHAT ARE DEPOSITS?

• To a bank, deposits are money borrowed and makes the bank

a debtor.

○ Depositor, the creditor, can claim deposits at his pleasure.

○ Bank can lend deposits while depositor does not claim these yet
and earn interest on loans granted.
WHAT ARE DEPOSITS?

• New Central Bank Law of 2000 (R.A. 7653, Section 58)

• ○ “Demand deposits” - all those liabilities of the Bangko Sentral and

of other banks which are denominated in the Philippine Currency and
are subject to payment in legal tender upon demand by the
presentation of checks.
 ● Method of Withdrawal
○ Demand Deposits
TYPES OF ○ Time Deposits
DEPOSITS
● Way They Are Created
○ Primary (direct) Deposits
○ Derivative Deposits
METHOD OF WITHDRAWAL

• DEMAND DEPOSITS

○ Withdrawn upon presentation of checks during

banking hours. (not banking hours, claims may be made
through checking account)

○ Can’t be held for a long period of time & does not

receive interest in modern times.
METHOD OF WITHDRAWAL

● TIME DEPOSITS

○ Withdrawn after a certain period of time or at a designated maturity.

○ Build up fund for homes, shopping, other future consumption

purposes.

1. Time Certificate of Deposit

2. Special Time Deposits
3. Savings Deposits
METHOD OF WITHDRAWAL

1. Time Certificate of Deposit

- Evidenced by a certificate
- Deposit only withdrawn at maturity or
after due notice (usually 30 days) upon
presentation and surrender of instrument.
- If withdrawn before maturity, interest
accruing on deposit is forfeited.
METHOD OF WITHDRAWAL

2. Special Time Deposits

- Evidenced by written contract

- Neither all nor part may be withdrawn before maturity date or at least
upon due notice of 30 days.
METHOD OF WITHDRAWAL

3. Savings Deposits

- Evidenced by a passbook

- Can be withdrawn only upon due notice of at least 30 days or

depending upon the individual’s bank policy.

- Modern banking: deposits may be withdrawn on demand provided

bank is in a position to meet the demand of depositor.
METHOD OF WITHDRAWAL

● All time deposits receive interest at varying rates.

● BSP sets minimum and maximum percentages which banks can offer
to customers.
WAY DEPOSIT IS CREATED

● DIRECT OR PRIMARY DEPOSITS

- “Over the counter”, when depositor himself brings money/checks/near

cash items to the bank and hands them to the teller.

- Depositor may have a representative.

- E-bankers: through ATMs (should be personally be registered in bank)

WAY DEPOSIT IS CREATED

● DERIVATIVE DEPOSITS

- From proceeds of loans; bank places the loan proceeds under a current
account from which he can draw checks eventually

- Multiple expansion of credit

- Increase volume of money = Represent new money

 1. Individual deposits or

KINDS OF business accounts

DEPOSITORS 2. Government deposits

3. Interbank deposits
 1. For safety

MOTIVES OF 2. For convenience

DEPOSITORS 3. For earnings or income

4. For accommodation
Significance of Deposits to a Bank

● More deposits -> more available loanable funds (can earn interest)

● More bank loans -> increase in stockholder’s confidence

● Increase in stockholder’s earnings (dividends) -> increase in

stockholder’s investments

● Increase in investments -> improvement of banking facilities and

services
DEPOSIT FUNCTION
Contribute to the satisfaction of the customers-depositors
Efficiency of the performance of tellers
Process of which banks operate receiving and paying

BANKS = Lifeblood

PUBLIC = Helps them save