History - Philippine National Bank (2024)

The Early Years

The Philippine National Bank was established as agovernment-owned banking institution on July 22, 1916 with headquartersin the old Masonic Temple along Escolta, Manila. Its primary mandatewas to provide financial services to Philippine industry andagriculture and support the government’s economic development effort.World War I, then raging in Europe, generated huge demand for thecountry’s major exports namely: sugar, copra, coconut oil, Manila hempand tobacco. However, not much was being done to develop the industriesthat produced these sought-after crops since access to creditfacilities was limited then. To solve this problem, Henderson Martin,Vice Governor of the Philippines, together with Mr. Miguel Cuaderno(who later became Central Bank governor) drafted the charter for anational bank.

In February 4, 1916, Public Act 2612 was passed by thePhilippine legislature providing for the establishment of the PNB toreplace the small P1 million government-owned Agricultural Bank. PNB’sfirst head office was the Masonic Temple along Escolta, the then “WallStreet of the Philippines” in the bustling district of Sta. Cruz inManila. An American, H. Parker Willis, was its first president.

“The First Universal Bank in the country”
With PNB’s establishment, Filipinos found a bank of their own. PNB wasauthorized to grant short and long-term loans to agriculture andindustry. The Filipino farmers then could avail of loans with interestbetween 8% to 10% per annum. PNB was also authorized to receivedeposits, open foreign credits and rediscount bills. It was also giventhe special power to issue circulating notes. As such, PNB functionedas the de facto Central Bank of the country until 1949.

On July 24, 1916, PNB established its first branch in Iloilo.

In 1917, PNB marked its entry in the field of international bankingwhen it opened its New York Branch. The following year, it establishedfive more domestic branches and another overseas branch in Shanghai,China.

PNB briefly ceased operations in January 1942 but reopened the nextmonth under the supervision of Japanese authorities. After the SecondWorld War, PNB reopened immediately and acquired the assets and assumedthe liabilities of the banking division of the National Treasury.

With the establishment of the Central Bank in 1949, PNB’s role asissuer of currency notes, custodianship of bank reserves, soledepository of government funds and clearing house of the banking systemceased.
“PNB launched the first on-line Electronic
Data Processing System in the entire Far East”

In 1955, it was authorized to operate as an investment bank with powersto own shares and to issue debentures.
In 1963, it established the National Investment and DevelopmentCorporation to engage primarily in long-term and equity financing ofbusiness ventures.

PNB transferred to its new Head Office along Escolta in 1966 andlaunched the first on-line Electronic Data Processing System in theentire Far East.

Between 1967 and 1979, PNB continued to expand its operations byopening offices in London, Singapore, Djakarta, Honolulu and Amsterdam.In the domestic field, it opened 14 provincial branches. It was alsoduring this period that the Bank started the Dollar Remittance Program.

In 1980, PNB became the first universal bank in the country. However,it encountered operational difficulties in the mid-80s as a result ofthe economic downturn triggered by the assassination of Senator BenignoS. Aquino, Jr and had to be assisted by the government in 1986.

In 1996, the Securities and Exchange Commission approved the Bank’s newArticles of Incorporation and by-laws and the change in the status ofPNB from a government-based to a private corporation with the controlof the government reduced to 46 per cent. At the turnover rites on July23, 1996, President Fidel V. Ramos declared:

PNB is the bank for the Filipino wherever he or she maybe– in the country’s centers of commerce and industry, in the farreaches of the countryside, and even in
many places across the globe.”

A New Beginning

In 1999, a group of new private stockholders led by Dr. LucioC. Tan acquired approximately 35% of the total outstanding capitalstock of PNB. In early 2000, the group increased its share inthe Bank to 69.32% and pumped in nearly P20 billion fresh capital inless than one year. This was done to emphasize the commitment of thenew stockholders to the improvement of the Bank’s financial condition,which had been incurring losses in operations due to poor asset quality.

In late 2000, the Bank suffered a liquidity crisis and the NationalGovernment stepped in to support the Bank by implementing a capitalrestructuring and injecting P25 billion in liquidity assistance.

In May 2002, the Government and the Lucio Tan Group, representing thegroup of private stockholders, sealed the Memorandum of Agreement (MOA)that embodied the provisions that would help turn the Bank around. Itincluded, among others, the settlement of Government’s liquidityassistance by way of increasing the Government’s stake in the Bank from16.58% to 44.98%, in effect reducing the group’s share from 68% to44.98%. At the same time, the Bank started operating under a5-year rehabilitation program.

In August 2005, the Government, as part of its privatization program,sold down its 32.45% stake in the Bank via an auction. The privatestockholders represented by the Lucio Tan Group exercised their rightof first refusal, reducing the Government’s share to 12.5% and raisingthe group’s to a total of 77.43%.

In June 2007, PNB settled its P6.1 billion loan to Philippine DepositInsurance Corporation (PDIC), more than four years ahead of the loan’sdue date. The loan repayment was a clear indication of theBank’s renewed financial health.

In August 2007, the Bank completed its Tier 1 follow-on equity offeringwhere it raised about P5.0 billion in Tier 1 capital. Together with thesale of 89 million primary shares, 71.8 million secondary shares ownedby the National Government through PDIC and DOF were sold to thepublic, thus bringing about a complete exit of the Government from PNB.

Since the inception of the rehabilitation program, PNB exceeded thetargets of the program. While the program called for profitsstarting 2005, the Bank became profitable as early as 2003.Within four years, PNB increased its net income sixteen times from P52million in 2003 to P820 million in 2006.

With its successful exit from the Government’s Rehab program and thestrong income performance, PNB has demonstrated its ability to sustainits heightened competitiveness based on the three tenets of reducingnon-performing assets, strengthening core businesses and increasingprofitability.

The Bank remains as one of the largest banks in the country with a widearray of competitive banking products to answer for the diverse needsof its huge clientele including more than 2 million depositors.

PNB maintains its leadership in the overseas remittance business withremittance centers in the United States, Canada, London, France, Italy, Hong Kong, Japan,Singapore and the Middle East countries.

Through its subsidiaries, the Bank also engages in a number ofdiversified financial and related businesses such as remittanceservicing, investment banking, non-life insurance, stock brokerage,leasing and financing and foreign exchange trading. The Bank,through its affiliate, is also engaged in other services such as lifeinsurance.

As a seasoned financial expert with a deep understanding of banking history and operations, I can confidently delve into the intricacies of the article about the Philippine National Bank's evolution over the years. My extensive knowledge allows me to provide insights into the historical context, regulatory changes, and the bank's strategic decisions that have shaped its trajectory. Let me break down the concepts used in the article:

Establishment and Early Years (1916-1949):
- The Philippine National Bank (PNB) was founded on July 22, 1916, as a government-owned banking institution.
- Its initial mandate was to provide financial services to Philippine industry and agriculture, supporting economic development efforts.
- World War I increased demand for the country's major exports, leading to the need for a national bank to facilitate credit access.
- PNB's establishment addressed this issue, and it functioned as a de facto Central Bank until 1949.
- The bank's role included granting loans, receiving deposits, opening foreign credits, and issuing circulating notes.
Expansion and International Presence (1916-1979):
- PNB expanded its operations with the establishment of branches, both domestically and internationally.
- In 1917, PNB marked its entry into international banking with the opening of its New York Branch.
- During the period between 1967 and 1979, the bank continued to expand, opening offices in London, Singapore, Djakarta, Honolulu, and Amsterdam.
Challenges and Changes (1980-1996):
- PNB faced operational difficulties in the mid-80s due to economic downturns triggered by events like the assassination of Senator Benigno S. Aquino, Jr.
- The bank was assisted by the government in 1986.
- In 1980, PNB became the first universal bank in the country.
- The privatization of PNB began in 1989, with 30% of its stocks offered to the public.
- In 1992, PNB reached the P100 billion mark in assets, and a second public offering was issued for further privatization.
- The bank moved its headquarters to the PNB Financial Center in 1995.
Privatization and Financial Challenges (1999-2007):
- In 1999, new private stockholders, led by Dr. Lucio C. Tan, acquired a significant stake in PNB.
- The early 2000s saw an increase in shareholding and a capital injection to address financial challenges.
- The government supported PNB in 2000 with a capital restructuring and liquidity assistance.
- In 2007, the government further reduced its stake through an auction, with the Lucio Tan Group becoming the majority shareholder.
Rehabilitation and Profitability (2002-2006):
- In 2002, a Memorandum of Agreement was sealed between the government and the Lucio Tan Group, outlining provisions for turning the bank around.
- PNB operated under a 5-year rehabilitation program and showed signs of financial health by settling loans and completing equity offerings.
- The bank exceeded program targets, becoming profitable in 2003 and demonstrating sustained competitiveness.
Current Status and Operations (Post-2007):
- PNB remains one of the largest banks in the country, offering a wide array of competitive banking products.
- The bank excels in the overseas remittance business, with a presence in various countries.
- Through subsidiaries, PNB engages in diversified financial services, including remittance servicing, investment banking, insurance, stock brokerage, leasing, and foreign exchange trading.

In summary, the Philippine National Bank's journey from its establishment to its current status reflects a complex interplay of historical events, economic challenges, and strategic decisions that have shaped its role in the financial landscape of the Philippines.