Wholesale banking: Does it play a role in the development of domestic industries?

• Main Authors: de Castro, Carlos V., De Castro, Maria Lourdes V., Sangalang, Joanna Patricia P., Villar, Clarissa V.
• Format: text
• Language: English
• Published: Animo Repository 1991
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/17295
• Institution: De La Salle University

The problem of long-term funds can be credited as one of the major gaps in the domestic financial market. Most financial institutions, except perhaps those who are development oriented, usually lend only on a short-term basis, using traditional sources of funds (deposits). Some long-term loans are financed through the roll over of short-term funding. The demand for long-term credit is expected to increase as the economy moves forward. Wholesale Banking is a process whereby administrators obtain funds in bulk to be lent to end borrowers using financial institutions as conduits. The process is not necessarily new as the Central Bank handled some credit programs in this manner in the past. Today, the two government banks which handle wholesale banking programs are Land Bank of the Philippines and the Development Bank of the Philippines. The latter is being groomed to be a predominantly wholesale bank. This study will only cover three programs, namely, the Agricultural Loan Fund (ALF), Industrial Guarantee Loan Fund (IGLF), and the Industrial Investment Credit Project (IICP).The Review of Related Literature presented three documents which affirmed the scarcity in long terms funds in the system and presented DBP's transformation into a wholesale bank. Wholesale Banking as it is known today, is developmental in nature. The researchers have tried to find out what role it plays in development. In the absence of written material on the topic, the proponents have relied on interviews with key persons from the Department of Finance, the administrators, and a number of Participating Financial Institutions (PFI's). The Wholesale Banking process is outlined. The different features of the programs have been reduced to a matrix for ease of presentation and for purposes of comparison. The interviewees' answers were the basis for most of the recommendations enumerated in the latter part of this paper. Through this study, the researchers found out that Wholesale Banking:1. Is a viable source of long term funds at more affordable rates 2, Encourages expansion 3. Mobilizes funds to areas outside Metro Manila, thereby spreading growth to the countryside 4. Diffuses funding by focusing on specific sectors 5. Act as a flexibility mechanism for PFI's and encourages them to lend to accounts which they ordinarily would not lend to 6. Spreads the risks involved in long-term lending and7. Is beneficial to end-users because it can reduce interest expenses, expand the business and increase profits.