HISTORY OF PHILIPPINE BANKING

Philippine banking has a long and colorful history. It began in 1828 when, as the Philippines reaped the benefits of increased trade, King Ferdinand VII of Spain issued a decree mandating the establishment of a public bank in the Philippines.

However, it took 23 years before that bank could become a reality. The man behind the actual organization of the bank was no less than the governor-general of the Philippines at that time, His Excellency Antonio de Urbiztondo y Eguia.

Gov. de Urbiztondo was a marquis of Solana in Spain who was named governor-general of the Philippines in 1850. His term of office was characterized by many administrative innovations, so it was not surprising that six years later, he would be called back to Madrid to take on a bigger role as Spain's new minister of war.

As the highest-ranking government official in the Philippines, Gov. de Urbiztondo called for the support of the Junta de Autoridades (a committee comprising of civil and ecclesiastical officials) in approving the bank's statutes and by-laws. The junta approved these statutes and by-laws on August 1, 1851, but it was understood that such approval had to be confirmed by the Spanish Crown.

The bank was called El Banco Español Filipino de Isabel 2, in honor of the reigning queen of Spain – Isabella II, daughter of King Ferdinand VII, who passed away in 1830. The Bank's office was located at the Royal Custom house (Aduana) in Intramuros (Intramuros was the original Manila, a European-style city enclosed by formidable stone walls).

The first managers of the Bank were Jose Maria Tuason and Fernando Aguirre, who each took turns serving as managing director every year. While the members of the Bank's highest policy-making board were essentially civil and ecclesiastical officials, there was also a businessman whom the Spanish Crown named to represent the business community of Manila. The man was Antonio de Ayala of the prominent Casa Roxas, precursor of Ayala y Cia, which is now Ayala Corporation.

The royal decree that confirmed the creation of El Banco Español Filipino de Isabel 2 also gave the Bank the exclusive privilege to issue paper money, which antedated the currency-issuing authority of the post-war Central Bank of the Philippines by about a hundred years (The present central bank, the official issuer of Philippine currency, started operations only in 1949). The original bank notes were collectively called pesos fuertes (PF), Spanish for "strong pesos."

The first bank notes (or paper money) in the Philippines had the issue date May 1, 1852 and could be redeemed in Mexican coins in gold or silver. Apart from carrying the name of the Bank as issuer of the currency, the bank notes also bore the portrait of the woman for whom the bank was named –- Queen Isabella II.

Coincidentally, the first transaction of the Bank was a lending transaction recorded on May 1, 1852, in which the Bank discounted a promissory note from a Chinese client. Three days later, the Bank recorded its first deposit from its first depositor.

On September 3, 1869, the Bank officially dropped the name of the queen after she was ousted from the Spanish throne during a revolution a year earlier. Like her father's reign, Isabella's rule had been stormy. Hence, since 1869, the Bank was known simply as El Banco Español Filipino.

Decades later, the management of the Bank decided to move out to where the business activity was. Binondo, on the northern side of the Pasig River, had emerged as the new center of business growth and, thus, gained more economic prominence than Intramuros.

The Chinese dominated the retail traffic while British merchants controlled the export-import business. Rosario Street (now Quintin Paredes) became the center of retail business while Escolta was the place for the finest of American and European shops. These were profitable sources of new business for El Banco Español Filipino after it relocated to No. 4 Plaza Cervantes in Binondo in January of 1892 on a piece of land acquired from the Dominican Order.

Through the years, the Bank had a close link with the Spanish Crown that even the establishment of its first branch had to be approved by authorities in Madrid. In fact, it took a royal order in 1896 to enable the Bank to open branches, although, again, this authority was still subject to clearance by Spain's minister of the colonies.

The Bank originally planned to open its first branch in Central Luzon during the first decade of its operations, which was sometime in the 1850s. The reason for this was the emergence of the region as a sugar-producing area. During that time, sugar was exported from this region, making the product a major source of income for local producers.

But the plan to put up this first branch did not materialize. By the time the Bank was ready in 1897, Central Luzon had been overshadowed by Iloilo and the Panay provinces in terms of economic prominence. This explains why the Bank's first branch was established in Iloilo instead, on March 15, 1897.

Following the signing of the Treaty of Paris in 1898, in which Spain ceded the Philippines and other territories to the United States, the Bank promptly shed off its Spanish character and converted into a Philippine institution. Years later, in 1912, as a result of an earlier decision of the stockholders to rename the Bank, El Banco Español Filipino became officially known as the Bank of the Philippine Islands (BPI), or Banco de las Islas Filipinas. Under the American administration, the Bank was allowed to continue issuing Philippine pesos, although no longer on an exclusive basis.

The period of rebuilding after World War II saw BPI getting actively involved in the development of industries. Although its conversion to a private bank during the American regime resulted in the loss of many privileges previously granted to it by the Spanish Crown, the Bank continued to do its share in nation building.

In 1969, the Ayala Corporation, which had been associated with the Bank since the start (either through a partner or a representative sitting on the board), became the dominant shareholder group. Following this change in the ownership structure, BPI soon became the financial flagship of the Ayala group of companies.

The ascendancy of the Ayala business house among the Bank's shareholder groups led to significant changes in the way the first bank in the Philippines conducted its business during the latter half of the 20th century. For instance, the Bank fast-tracked its growth by engaging in a merger with Peoples Bank and Trust Company in 1974. This was followed by the merger with or acquisition of Commercial Bank and Trust Company in 1981, Ayala Investment and Development Corporation in 1982, Makati Leasing and Finance Corporation in 1982, Family Bank and Trust Company in 1985, City trust Banking Corporation in 1996, Ayala Insurance Holdings Corporation in 2000, Far East Bank and Trust Company in 2000, DBS Bank Philippines in 2002, and Prudential Bank in 2005.

BPI officially became an expanded commercial bank (Universal bank) in 1982, and thus started engaging in non-allied undertakings.

In 2000, BPI became the first banc assurance firm in the Philippines, after it acquired the insurance companies of the Ayala Group. These companies (under the Ayala Insurance Holdings Corporation) were FGU Insurance Corporation, Universal Reinsurance Corporation, Ayala Life Assurance, Ayala Health Care, and Ayala Plans. FGU Insurance was later merged with FEB Mitsui Marine Insurance Company and is now known as the BPI/MS Insurance Corporation.

Also in 2000, the Bank introduced its internet bank, BPI Direct Savings Bank, which launched BPI into 21st century banking.

Today, BPI has maintained a leadership position in consumer banking, trust banking, and asset management, corporate banking/corporate finance, and banc assurance. With over 700 branches and around 1,100 automated teller machines, BPI boasts of having the largest combined network of branches/kiosk units and ATMs, servicing some three million depositors.

For years, international publications and rating agencies have given annual awards to BPI as one of the best banks in the region. Among these are Asia money, Business Week, Euro money, Far Eastern Economic Review, Finance Asia, Global Finance, The Asian Banker, The Asset, and The Banker.

BPI has consistently been cited for its above-average profitability, sufficient capital/assets, low cost funding base, and manageable non-performing loan levels. Fitch Ratings noted that BPI has a comprehensive risk management which is superior to that of its peer banks, and this serves as an important element in keeping BPI better positioned in Philippine banking in the years ahead.

The First Bank

DID YOU KNOW...

...that the first bank in the Philippines, established in Manila on August 1, 1851 and originally called El Banco Español Filipino de Isabel 2, was also the first bank in Southeast Asia?

…that this bank was organized 23 years after the king of Spain, Ferdinand VII, issued a decree to establish a public bank in the Philippines?

…that before the establishment of El Banco Español Filipino de Isabel 2, the functions of banks were performed, though on a limited scale, by the obras pias (Spanish for "pious works")?

…that the obras pias were an accumulation of bequests whose donors had specified that the funds be used for charitable, religious, and educational purposes?

…that some of the funds were managed by confraternities that invested capital in secular activities like underwriting cargoes for the galleon trade?

…that the organization of this bank was spearheaded by His Excellency Antonio de Urbiztondo, who was then the Spanish governor and captain-general of the Philippine Islands?

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Antonio de Urbiztondo y Eguia

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El Banco Español Filipino de Isabel 2

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Treaty of Paris

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Jose Maria Tuason