Banking history (Part II)

MANILA, Philippines – Last week, we discussed the growth of banking in the Philippines during the Spanish and American colonial periods. In this second article of our four-part series on the history of banking in the country, we will examine how banking developed during the Commonwealth era and under the Philippine Republic.

During the Commonwealth period (1935-1946), more foreign bank branches, such as the Bank of Taiwan and the Nederlandsche Indische Handelsbanks, were established in the Philippines.

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, reported to be the first bank with genuine Filipino private capital, was also established during this period. However, it was temporarily closed at the outbreak of the Second World War.

According to the Bangko Sentral ng Pilipinas’ “The General Banking Law Annotated: Book 2” (our main source of these historical data), only Filipino-owned and Japanese banks were allowed to operate during World War II.

The Chartered Bank of India, Australia, and China, the 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 (or the 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 June 1945, Executive Order No. 48 paved the way for the reopening of some banks.

The first license to reopen was granted to the National City Bank of New York in June, 1945. In the same year, other foreign banks such as the Chartered Bank of India, Australia, and China, HSBC, and Nederlandsche Indische Handelsbanks were likewise granted the license to reopen.

In 1947, a branch of the Bank of America, NT & SA (Bank of America) of San Francisco, California, was allowed to establish a branch in Manila. The following year, the Bank of America absorbed the assets and liabilities of the local branch of the Nederlandsche Indische Handelsbanks.

In 1949, when the Central Bank of the Philippines started its operations, the banking system consisted of seven commercial banks, three thrift banks, the sole government specialized bank, the Agricultural and Industrial Bank, and seven foreign bank branches.

In the next two installments of this series, we will discuss the financial innovations that were introduced in the Philippines (divided into three main episodes):

* Banking innovations prior to the 1990s.

* Institutional changes in the 1990s: classified into foreign exchange liberalization, financial liberalization, and the passage of the General Banking Law of 2000.

* After the year 2000: The emergence of non-traditional banking products and services.

Note: You may e-mail us at totingbunye2000@gmail.com. Past articles may be viewed at http://speakingout.ph/speakingout.php.

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