Banking for all: A Filipino story

The Philippine banking industry has undergone a remarkable transformation over the years, shifting from the traditional, labor-intensive practices of past decades to a digitally driven system that aims to make financial services more accessible to all. This journey dates back to the Spanish colonial era with the establishment of the first bank in the country, the El Banco Español-Filipino de Isabel II, in 1851. At the time, banking primarily served the elite, catering to wealthy landowners, businessmen and government officials. Transactions were conducted in person and recorded manually in ledgers. Services were also limited to basic offerings such as savings and loans.

Throughout the 20th century, the banking sector expanded as the country industrialized. Post-war reconstruction and significant economic reforms paved the way for the establishment of more banks, including rural banks aimed at supporting agricultural communities. However, these services still primarily targeted urban areas, leaving many Filipinos in rural and remote locations unbanked.

The late 20th century saw the gradual adoption of technology in Philippine banking. Automated teller machines (ATMs) were introduced in the 1980s, revolutionizing access to basic services. Banks began computerizing operations, improving efficiency and customer service. By the 1990s, electronic fund transfers and credit cards had become increasingly common, foreseeing a future of a more connected financial system.

However, it is the rise of digital technology in the 21st century that marked a true turning point for the Philippine banking industry. Mobile banking apps, online platforms and fintech innovations have redefined how Filipinos access and manage their money. This digital transformation accelerated significantly with the advent of smartphones, a common tool for many Filipinos, bringing financial services directly into consumers’ hands.

The Bangko Sentral ng Pilipinas (BSP) has played a crucial role in driving this shift. Initiatives such as the National Retail Payment System (NRPS) and the launch of real-time payment platforms like InstaPay and PESONet have made transactions faster, cheaper and more accessible. These systems allow individuals to transfer money, pay bills and shop online without needing to visit a bank branch.

Digital wallets have also been transformative. These platforms offer Filipinos a more convenient way to save, pay and even invest without requiring traditional bank accounts. They’ve become vital tools for small businesses, freelancers and unbanked Filipinos, offering entry into the formal financial system.

Digital transformation has significantly advanced financial inclusion in the Philippines. According to the BSP, the number of banked Filipinos grew to 56 percent of adults by 2021, compared to just 29 percent in 2019. The COVID-19 pandemic further accelerated this trend, as government-imposed lockdowns forced individuals and businesses to adopt digital transactions.

Despite this progress, challenges remain. Many Filipinos in remote areas lack proper internet access or are digitally illiterate, limiting their ability to benefit from these advancements. Additionally, cybersecurity risks—such as scams and fraud—pose significant threats to trust in digital banking.

The future of Philippine banking lies in the continued integration of digital technology with inclusivity-focused policies. Financial institutions must prioritize accessibility, ensuring that services are available even in the most underserved areas. Collaboration between the government and the private sector will be essential to improving digital infrastructure and promoting financial literacy programs.

From its humble beginnings as a service for the elite, Philippine banking has transformed into a digital ecosystem that strives to include every Filipino. While challenges remain, the progress made so far provides a strong foundation for a future where financial services are truly universal. As the Philippines continues to bridge the gap between traditional banking and digital innovation, one thing is certain: the future of banking lies in inclusivity and accessibility.

LEGAL TALK 1

The Revised Corporation Code of the Philippines (RCCP), under Section 42, prohibits stock corporations from retaining profits in excess of 100 percent of their paid-in capital stock, except in the following cases:

When justified by definite corporate expansion projects or programs approved by the board of directors.

When the corporation is prohibited under any loan agreement with financial institutions or creditors, whether local or foreign, from declaring dividends without their consent, and such consent has not yet been secured.

When it can be clearly shown that such retention is necessary under special circumstances, such as the need for a special reserve for probable contingencies.

The RCCP imposes fines and other penalties on corporations that retain surplus profits in excess of 100 percent of their paid-in capital stock when not covered by these exceptions.

Meanwhile, Section 29 of the National Internal Revenue Code (NIRC) previously imposed a tax equal to 10 percent of improperly accumulated taxable income. This tax was applicable to corporations formed or those which retain such level of excess profits to avoid income tax on shareholders by allowing earnings and profits to accumulate instead of distributing them as dividends.

However, the CREATE Law deleted the improperly accumulated earnings tax (IAET).

With the repeal of Section 29 of the NIRC, a question arises: Does the prohibition under Section 42 of the RCCP remain in force?

In a legal opinion (23-14, October 2, 2023), the Securities and Exchange Commission (SEC) Office of the General Counsel clarified that the CREATE Law did not expressly nor impliedly repeal Section 42 of the RCCP. It emphasized that the IAET, which was deleted under the CREATE Law, is distinct and separate from the prohibition under Section 42 of the RCCP. Therefore, the SEC retains the authority to impose penalties for violations of Section 42 after due notice and hearing.

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