History of banking in the Philippines (Part I)

MAYBE you’ve wondered when the business of banking first came about in the Philippines. Or maybe, you’re curious if banks existed during the Spanish and American colonial periods, and how they fared during the Japanese occupation.

As always, history provides the best answers to these questions. The Bangko Sentral ng Pilipinas (BSP) has published a very informative book, “The General Banking Law Annotated: Book 2,” which details the history of banking in the Philippines.

For the next four weeks, I will share with you this special history as written in the BSP book.

According to “The General Banking Law Annotated: Book 2,” the first organized credit institutions, known as Obras Pias, were established in the Philippines during the 16th century Spanish colonial era.

The capital of Obras Pias came from pious Catholics and their profits were intended to maintain hospitals, orphanages and other charitable endeavors.

The Obras Pias served as commercial banks and marine insurance companies, with the bulk of their funds invested in 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 respective branches in Manila.

In 1883, Madrid-based Banco Peninsular Ultamarino also established a branch in the country. However the Spanish bank ceased operations after four years.

By the end of the Spanish regime, the banks in existence were: El Banco Español Filipino de Isabel (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.

It should be noted that under the Spanish regime, there were no significant Filipino interests, initiatives, or capital in banking.

During the American colonial period, banks from the United States of America 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 four years of operation.

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, N.A.).

Other foreign banks subsequently made their presence in the Philippines. In 1918, the Manila branch of the Yokohama Specie Bank was given a license to do business in the Philippines.

From 1919 to 1930, foreign banks Asia Banking Corporation, the Chinese-American Bank of Commerce of Peking, China, and the National City Bank of New York opened branches in the Philippines.

During the American colonial era, the Philippine banking system was largely dominated by foreign bank branches whose capitals were devoted to financing commerce and trade, rather than the development of the country’s natural resources.

It should also be mentioned that the Bank of the Philippine Islands, which then possessed the privilege of issuing currency notes, was the only significant bank controlled by local interests.

To break the foreign banking monopoly and remedy the lack of credit facilities, the Philippine National Bank (PNB) was established in 1916 with the Philippine Government as the majority stockholder.

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.”

Its charter at that time empowered the PNB to issue bank notes and act as a depositary of government funds.