Bridging the Gap
By Henry Funtecha

Re-activating banking and finance in Iloilo after WWII

Before the war, Iloilo was Manila's rival not only in trade but also in banking and finance. However, the Japanese occupation left the banking system in a state of near collapse. Most of the bank's assets consisted of the invaders' war notes, bonds and advances to the Japanese-sponsored Philippine Republic. At the same time, many of the bank buildings were also destroyed completely.

Right after the liberation in 1945 and after discovering vaults of worthless Japanese notes in the banks, an executive order decreed the invalidation of all occupation deposits thereby adding more injury to the nearing bankruptcy of the banks. Banks and financial houses in Iloilo were in disarray then.

The banks that reopened for business in Iloilo soon after the war were the Bank of the Philippine Islands (BPI), The Chartered Bank, the Hongkong and Shanghai Bank, and the Philippine National Bank (PNB).

Rehabilitation of the banking system was made possible by Executive Order No. 49 issued on June 6, 1945. The order discharged the banks from any liability for deposits made during the occupation and made them liable only for pre-occupation deposit balances. Executive Order No. 48 issued on the same day, authorized the bank commissioner to allow any bank which was solvent and in a position to operate to reopen immediately. The rehabilitation of the rest of domestic banks had to wait until 1946 when Commonwealth Act No. 726 was passed. The Act appropriated P10 million for their rehabilitation.

The total national pre-war loans were reduced from P80 million to P2 million with most of the repayments being made in worthless Japanese pesos. Many of the pre-war loans not repaid during the occupation were rendered worthless either due to the death of the borrower or the destruction of the property used in securing the loan. Consequently, new limits to lending impeded the banks' credit activities. The banks in Iloilo felt a need to strengthen themselves in order to build up their capital base, generate more deposits and develop a banking system more responsive to the needs of the rural population.

Soon after the reopening of the banks, the assets and liabilities of the Banking Division of the National Treasury were transferred to PNB. This helped the bank recover, enabling it to play a key role in the reconstruction, rehabilitation and, subsequently, in the growth and development of a newly independent Philippine Republic.

The General Banking Act of 1948 included among its regulations the limitation of foreign banks' presence to the already existing number of branches in the Philippines. Thus, the Chartered Bank in the country was limited to the offices in Iloilo, Cebu, and Manila. The Zamboanga agency, which was operating before the war, had long since been closed.

Hong Kong and Shanghai Bank, on the other hand, made national banking history by becoming the first bank in Iloilo to make good to all its depositors the full amount of their pre-war credit accounts.

In 1949, with the establishment of the Central Bank of the Philippines (CBP) as a step towards further development of the Philippine banking system and the revamp of the Philippine monetary system, PNB gave up its de facto role of central banking activities. PNB ceased to be the custodian of bank reserves and was no longer the sole depository of the government clearing house of the banking system and the national treasury. It also ceased to be the bank of issue for circulatory notes and real estate bonds. All these basic functions were transferred to the Central Bank.

Nevertheless, PNB continued to assist primarily the sugar industry in the West Visayan region into one of the country's major dollar earners and a pillar of the economy. As the bank was authorized to grant short and long-term loans to agriculture and industry, Ilonggo farmers and businessmen could then avail of loans at low interests, payable in a year or more.