Banks to draw rules covering payments

BAGUIO CITY, Philippines — The country’s universal and commercial banks have agreed to the real time gross settlement (RTGS) of payments amounting to P5 million and above — a proposal made by the Bangko Sentral ng Pilipinas (BSP) to mitigate the credit risks it faces from the current way payments are settled. Rene N. Carreon, central bank assistant governor for monetary operations, said the banks as represented by the Bankers Association of the Philippines (BAP), have agreed to organize a task force to come up with the rules and detailed operating procedures on the new payment system by this month, and conduct an information campaign and pilot-testing by June 15. The Chamber of Thrift Banks, however, has objected to RTGS since its member banks find it difficult to reconfigure their systems. Mr. Carreon said he will echo the chamber’s objection to the Monetary Board, so its member banks can be given more time to comply with the new payment system. He cited the Philippines as the only country in the world that still does not implement real time processing and final settlement of funds transfers. "The RTGS is an automated facility to effect high-value payment transactions between banks through the deposit accounts of the banks that are maintained with the central bank. Payments are irrevocable and final. It eliminates the settlement, credit and liquidity risks," he said. Under the BSP proposal, BAP will cover the temporary needs of all its clearing member banks that will incur a net debit position under its proposed collateralized overnight repurchase window. Mr. Carreon said the participating banks with clearing operations under the Philippine Clearing House Corp. (PCHC) will establish an overnight credit line with the BSP equivalent to 25% of the direct-participant bank’s daily average outward items to protect BSP from credit exposure. Currently, checks are settled through the PCHC and the BSP clearing unit offices through the demand deposit accounts of banks maintained with the BSP. Outward clearing items are settled by the BSP on the day these checks are presented for clearing. "However the funds become available only for use by the depositor-payee on the third banking day for checks issued within Metro Manila or seven banking days for out-of-town checks," Mr. Carreon said. The BSP is exposed to risks as the current practice of payments clearing system allows deferral of settlement in the clearing balances of participating banks or branches with the BSP. "The BSP extends a credit accommodation equivalent to the outward clearing items without cost to the drawer bank," he said. Through the proposed system, Mr. Carreon said, a payee will be able to get his funds immediately within minutes from application and approval. "You don’t have to wait for two days before you can get your money but the system should be configured. You can do it via the Internet as other countries are doing it," he added. In his paper "The Philippine Payment System: Efficiency and Implications for the Conduct of Monetary Policy," written in 2001, Mario Lamberte of the Philippine Institute for Development Studies said the country must not neglect to invest in its payment system "to improve the efficiency of the economy, in general, and the financial system." He said the payment system is a major component of the country’s infrastructure system. "The country’s payment system, therefore, must be efficient so that funds can quickly move among market participants for productive use, thereby promoting more activities in the economy," he said. — Ruby Anne M. Rubio, BusinessWorld