RP banks must have pooling services, electronic banking

Pooling and cash concentration are facilities quite familiar to MNCs and large local corporations in the Philippines, but are quite unconventional concepts for the smaller, local corporations. Because overdrafts are not allowed in the country, pooling is technically not applicable. However, banks do offer ways of sweeping to maximize the returns on excess funds. Funds beyond the daily (or weekly) working capital requirements are classified as excess funds, and banks have been encouraging corporations to place their surpluses with them. Although it directly indicates thinner margins for the banks (since cash accounts are normally paid much lower interest than placements such as time deposits), competition has driven them to offer this kind of service.

For MNCs, the ability to provide cash sweeping facilities increasingly appears to be a significant factor in the selection of a foreign bank, especially with the trend towards regionalization. With the intensity of competition between foreign banks, sweeping and pooling options will undoubtedly develop with fuller implementation locally. However, the absence of an automated system limits a bank’s ability to promote the operational efficiency a customer can derive from cash sweeping.

Electronic banking is widely practiced and is becoming an essential part of banking services, although local banks have varying degrees of automation. Today, more than a dozen banks actively sell such convenience banking, with features including account queries, electronic payments, and local stock purchase.

In 2000, the BSP issued a circular requiring all banks to seek prior approval from the BSP for the provisions of electronic banking services. Banks engaged in or planning to engage in these services must have a risk management process in place that can prevent and control risks arising from electronic banking activities. Apart from the documentation required, banks were asked to present their respective electronic banking services.

Of the 40 banks that applied, many were approved and some were deferred, pending the submission of certain requirements. Apart from the bureaucratic challenge this has posed to banks, it is nevertheless a positive development from the subscribers and users of electronic banking services in the country – an additional way to safeguard their interests. It also serves to promote confidence in electronic banking, advocating that customers can benefit from the efficiency of using technology in their day-to-day banking transactions.

Web-based electronic banking has also started to flourish in the Philippines. However, it appears that corporates, due to security concerns, prefer the proprietary-based solutions (i.e., systems that are directly hooked up to a banking system). Web-based banking is generally designed for personal banking customers, as it has limited flexibility to accommodate the signing arrangements of corporate (e.g., authorization and co-authorization).

Corporations need assurance on the question of electronic banking security; thus, the provision of a secure and fault-free system is as relevant to the customer as the transactions the system is capable of handling. Local commercial banks, recognizing the technological edge held by the large foreign banks, have introduced their own products in response to the need to satisfy electronic banking demand, with a few local banks launching web-based solutions. There is a key advantage for foreign banks over local banks since foreign banks have been investing heavily in electronic banking and can distribute their services to a much wider customer base. By contrast, local banks are limited in their implementation and thus in their development expenditures.

The features most commonly sought by Philippine corporations are the ability to view balances and transactions, and to effect payments and trade transaction. Most, if not all, of the electronic banking providers in the country can fulfill these functions. A key function is the ability to integrate with a corporation’s financial system. For example, by producing a list of payables that is electronically picked up by the banks system, which in turn effects electronic payments, the bank is assured of business volume. Again, the trend is towards a corporation outsourcing its payables to the bank.

All corporations in the Philippines must deal with regulations, and banks must act as a guide to compliance. Relevant regulations include the following:

• the purchase of foreign exchange in excess of $5,000 without supporting documents is not allowed;

• the purchase of foreign exchange from the banking system for deposit to a resident account is not allowed;

• foreign exchange for the repatriation of capital and remittance of dividends, profits, and earnings accrued shall be sourced from the banking system with the foreign investment registered with the relevant regulatory body in the country; and,

• the import of export of more than P10,000 is not allowed (whether it is currency, drafts or checks).

The arrest the continuing depreciation of the peso in the first half of 2001, the BSP earlier in the year lowered the ceiling on the purchase of foreign exchange without supporting documents to $5,000 from $10,000. All foreign exchange purchases, however, still must be reported, regardless of amount. All trade-and non-trade-related foreign exchange transactions must establish their validity, thereby precluding speculative-driven purchases and the unnecessary hoarding of dollars by institutions and individuals. Any prospective counter-party seeking to buy or sell currency in the Philippines is recommended to consult a banker and professional adviser to ensure compliance with local regulation.