A look at our banking system

If you will name a business tycoon in the country, like the Ayalas, the Tans, the Sys and many other business families, there's one thing in common with them. They own a bank. For the Ayalas, they have the Bank of the Philippine Island. Henry Sy's conglomerate includes Banco de Oro. Lucio Tan has just gotten full control of PNB and recently merged it with his own Allied Bank. The banks are supposed to be the drivers of growth of our economy. This is the source of money that any entrepreneur could get from in order to establish one's business. And unluckily, all the banks are controlled by the business tycoons.

The first sign that the Philippines would never become a rich country is the monopoly that is going on by the plutocrats. Our country is run by plutocracy. That means only those rich people would eventually benefit from it. And to illustrate this, it is important that you will know how the banking system works in order for you to be aware as to where money has been allocated.

The Bangko Sentral ng Pilipinas or the Central Bank of the Philippines is the main source of money. It is where our peso is coming from. Previously, there's a gold equivalent to every amount of money the Central Bank printed. But, the gold standard was scrapped and eventually what we have as a currency is just like an issued check by the Central Bank without any equivalent at all. The money we have does have no gold equivalent at all but just an IOU paper which, if you will ask central bank to pay you the amount equivalent, it will take several years to get your equivalent of money.

Now, we are not talking about the capacity of central bank to pay us individually. That would take a lot of paperwork and years for that to happen. Instead, we will be tackling how this money supplier works. As the main source of money, all the banks will be getting their supply from the Central Bank. In this way, the banks work like a franchisee of Bangko Central. That is why when a bank would collapse, the Central Bank will take it over and get all the assets of a bank.

When the Central Bank distributed the money, they will set the interest. As of now, the Central Bank rate is at 3.5 percent per annum. This means that banks can borrow money from Central Bank at that rate. Now, this is very exciting to know. Because when you will borrow from bank, they would give you a higher interest. As of the moment, the market interest rate is at least 7 percent per annum. The least the bank can profit from it is around 3.5 percent. Of course, we would consider that bank needs to cover the cost of operation.

Surprisingly, the bank lent us at the excruciatingly high rates to up to 40 percent. Imagine, your credit card rate is at 3.5 percent per month. If you will add all the interest rate of your credit card in a year, it will sum up to 42 percent. In addition to that, there are also some fees being charged to you. That is just an example of how banks can totally screw up your financial stability.

But the tycoons know that in order to get a better deal and to be able to get a good deal of money for their business, they have to establish a bank. In this way, their banks will get loans from the Central Bank at the lower rate and distribute this to their businesses which their individual businesses would just be paying at the lower than the so-called market rates. In this way, their businesses have been a beneficiary of lower interest rate while an individual credit card holder is paying a higher interest on their credit card debts.

Knowing who has the monopoly of this money stream, you would definitely get who is behind all this. With money as the driver of economy, those who are not in the tycoon circle will eventually be left out. That is why we are still wallowing in poverty. And this will be the same thing if we do not change how money will be distributed properly.

Kris Iroy

Lapu-Lapu City