History of Banking in the Philippines

The first organized credit institutions were established in the Philippines during the 16th century Spanish colonial era. These were the OBRAS PIAS.

Obras Pias was a charitable foundation during the Spanish period Obras Pias was a charitable foundation during the Spanish period. The word itself means works of piety in Spanish. The Church directed a share of personal fortunes to its charities such as the Obras Pias. Donors had specified that the funds are to be used for charitable, religious and educational purposes. However, some of the funds were managed by confraternities that invested capital in secular activities like underwriting cargoes for the galleon trade.

In 1869, the opening of the Suez Canal facilitated trade between the Philippines and Europe. The Philippines then attracted British capital, and in the years that followed, the Chartered Bank of India, Australia, and China (now known as the Standard Chartered Bank) and the Hong Kong and Shanghai Banking Corporation (HSBC), both British-owned banks, opened their branches in Manila.

SUEZ CANAL

By the end of the Spanish regime, the banks in existence were: El Banco Español Filipino de Isabel II (now the Bank of Philippine Islands or BPI) which was given the sole mandate under a Spanish Royal Decree of 1854 to issue banknotes called Pesos Fuertes; the Chartered Bank of India, a branch of the HSBC; the Monte de Piedad; and the Banco Peninsular Ultamarino de Madrid.

During the American colonial period, banks from the USA started to establish local branches that would cater to growing American economic interests and capital inflow into the country. The American Bank was first to open a branch in 1901. However, it was placed under receivership by the Insular Treasurer for making doubtful loans after only 4 years of operations.

In 1916, the Philippine National Bank was established with the Philippine Government as the majority stockholder. This is to break the foreign banking monopoly and remedy the lack of credit facilities.

The PNB was meant to function as a government enterprise that would widen the variety of banking services “beyond trade finance in exportation and importation, money changing of foreign currency, and fund transfers, all of which , while useful in the short term, failed to mobilize capital in the development of natural resources.” It’s charter at that time empowered PNB to issue bank notes and act as a depository of government funds.

At the turn of the 20th century, the Americans established the Guaranty Trust Corporation (GTC) and International Banking Corporation (IBC). The existence of GTC was short-lived, while IBC was eventually taken over by the National City Bank of New York (now known as Citibank). In 1918, the Manila branch of the Yokohama Specie Bank was given license to do business in the Philippines.

Between 1935 to 1946, more foreign bank branches were established in the Philippines. These include the Bank of Taiwan, and the Nederlandsche Indische Handelsbanks. In 1939, the government created the Agricultural and Industrial Bank to absorb the functions of the National Loan and Investment Board and to harness government resources.

The Philippine Bank of Communications is the first bank with genuine Filipino private capital. However, it was temporarily closed at the outbreak of WWII. Only Filipino-owned and Japanese banks were allowed to operate during WWII; The Chartered Bank of India, Australia, and China, HSBC, and the National City Bank of New York were all treated as enemy properties and placed under liquidation by the Japanese Military Government.

On the other hand, the Nampo Kaihatsu Kinko (Southern Development Bank) opened a Manila branch in 1942 and acted as the Japanese government’s fiscal agent in the Philippines. After the liberation, all domestic banks that operated during the Japanese occupation were unable to reopen because the greater part of their assets consisted of worthless Japanese war notes, bonds, and obligations of the Japanese-sponsored republic, and balances with Japanese banks.

In 1947, a branch of the Bank of America was allowed to establish a branch in Manila and in the following year, it absorbed the assets and liabilities of the local branch of the Nederlandsche Indische Handelsbanks.

In 1952, the Rural Bank Act was enacted and two years later, the Agricultural and Industrial Bank merged with the Reconstruction and Rehabilitation Fund to form the Development Bank of the Philippines.