Philippines still looking forward to comprehensive electronic transfers

The banking system in the Philippines comprises commercial, universal, thrift, rural, and specialized government banks, with various categories of banks offering differentiated business activities. Mosst banks that offer structured cash management services fall either in the commercial or universal category, the latter also having the powers to act as investment houses and invest in the equity of companies not related to banking.

The banks are governed by Bangko Sentral ng Pilipinas (BSP). The Philippine banking system is supported by two other entities, namely:

•The Bankers Association of the Philippines (BAP) which is a non-profit, non-stock organization of commercial banks operating in the Philippines, and serves as the forum for its member banks to discuss and address issues relating to the local banking environment.

•The Philippine Clearing House Corp. (PCHC) is a private corporation created and maintained by the BAP, which operates, together with the BSP, all the existing clearing infrastructure in the country. The BAP oversees the operation of the PCHC and its local clearing systems.

Clearing And Settlement Systems

Checks continue to be the main settlement tool for local currency business transactions since these instruments are still the cheapest and most accessible. In 2002, the number of checks processed by the clearing house was 118.9 million compared to fewer than one million electronic transfers across the settlement systems.

The nationwide magnetic ink character recognition (MICR) and automated clearing operation covering the inter-regional check clearing exchange was launched in October 2001. It is composed of 63 clearing units: nine integrated clearing regions (three-day clearing) and 54 regional clearing units (five- to nine-day clearing). All provinces outside of the coverage are considered "out-of-town" areas that can take as long as 30 days to clear. The volume of out-of-town checks has fallen sharply after the increase of regional clearing units from 27 to 54 in June 2003, and is expected to decrease further as more centers are converted.

The check clearing system is run by the PCHC, which is supported and regulated by the BSP. Future developments in this area are:

•The integration of the clearing process of selected integrated clearing regions into a single clearing unit, reducing clearing time from seven days to three days; and,

•The conversion of local and, at a later stage, inter-regional clearing operations of the remaining regions (after integration) from MICR to an image-based electronic check clearing system.

The Philippine Payments System (PhilPASS), which was implemented in November 2002, provides real-time gross settlement (RTGS) for both inter-bank transactions and customer transactions. However, the system has yet to be actively used for the latter. The Electronic Peso Clearing and Settlement System (EPCS) replaced the 10-year-old peso netting system in January 2003, and supports both payments and collections. The collections module has not been implemented by most banks as of the time of writing. Both systems are run by the PCHC with BSP as the settlement bank.

The Philippine Domestic Dollar Transfer System (PDDTS) provides both real-time settlement (usually referred to as PDDTS GSRT, or gross settlement real-time) and end-of-day netting (referred to as PDDTS) facilities. The RTGS system is operated by the Philippine Central Depository (PCD) and the end-of-day netting by the PCHC, with a foreign bank as the settlement bank for both systems.

Cash Management Overview

In addition to the foreign banks that provide structured cash management services in line with their regional and global offerings, a number of large local banks have also introduced similar services. Their advantage lies in extensive branch networks, and many of them offer e-banking solutions as well. Most foreign banks in the Philippines use the services of correspondent banks to enable national coverage for their collections.

Outsourcing solutions, especially that for payables and payroll, are becoming increasingly popular with local treasurers. There is an increasing demand for integrated solutions with their back-office systems. Following are some important considerations for corporates seeking cash management services in the Philippines.

Classification of accounts into resident and non-resident. Resident companies are registered with the Securities and Exchange Commission (SEC) and have a local license to operate in the Philippines, including representative and branch offices. Non-resident accounts can be funded only through an inward remittance in foreign currencies and have a different withholding tax structure.

Currency controls. There are extensive foreign exchange controls in place, and for foreign currency purchases about $5,000 across 20 days a notarized application to purchase foreign currency needs to be filled out and supporting documents provided. All trade-related foreign currency purchases, regardless of amount, are required to be documented. International outward remittances in pesos in excess of P10,000 are not allowed without prior BSP approval.

Liquidity structures. National pooling is not allowed since overdrafts are not allowed in the Philippines. In addition to time deposits and treasury offerings, corporates can opt for the cash concentration services that are offered by few banks (i.e., the end-of-day transfer of funds to a higher interest-bearing account).

– To be continued