The Market Monitor Minding the Nation's Business
Even before the money-laundering scandal involving the $81 million hackers stole from Bangladesh Bank, foreign banks had already been reducing money-transfer operations that were having an adverse impact on the remittance costs and flows of overseas Filipino workers (OFWs), Bangko Sentral ng Pilipinas (BSP) Gov. Amando Tetangco Jr. said.
In a recent speech before the Financial Inclusion Summit at the BSP Assembly Hall, Tetangco said the central bank was concerned over the adverse impact on OFW remittances of the closure of accounts that are limiting their exposure to possible channels for money laundering and other financial crimes.
“This is a de-risking strategy largely driven by business decisions of foreign banks, weighing the risks and benefits of dealing with remittance companies. This has been going on in recent years and has not been helped by the present money-laundering case here,” he said.
Tetangco said that, since closures of money-transfer operations of foreign banks limit the players that can competitively operate in the remittance market, this has the potential to reverse the steady gains made in reducing remittance costs.
He said the trend among banks overseas might also result in the movement by OFWs toward informal-remittance channels and their subsequent financial exclusion.
“In the end, this may exact an even larger toll on the OFWs and their families in terms of deprivation of access to safe and reliable financial services,” Tetangco said.
“In the last 10 years, from 2005 to 2015, [OFWs] have sent over $228 billion in remittances [personal and cash] to our country,” he said.
Last year alone, more than 10 million OFWs sent over $28.5 billion in personal remittances, higher by 4.4 percent than the 2014 figure of over $27.3 billion. The amount of remittances last year was equivalent to 9.8 percent of the country’s gross domestic product (GDP).
The Philippines has been consistently ranked among the top recipients of remittances.
A World Bank report on 2015 remittances said the Philippines ranks third among the top remittance-receiving countries, next to India and China, both of which have over a billion in population.
Tetangco, however, noted that the remittances sent home were mostly used for consumption expenditures, as 97.3 percent of OFW households used the remittances to purchase food and other household needs.
The BSP’s Consumer Expenditure Survey (CES) showed the rising proportion of households directing remittances received to savings, from 7.2 percent in 2007 to 43.4 percent in the first quarter this year.
This is one of the many reasons Philippine bank deposits have been hitting record high levels, from P8.5 trillion in December 2014 to over P9.2 trillion as of December 2015, Tetangco said.
He said the challenge and opportunity for the government is to encourage more investments by OFW households as it continues to lag way behind savings.
“As indicated by our survey, households that allocated part of their remittances for investments, increased from 2.3 percent in 2007 to only 6.5 percent in the first quarter this year. That is over a period of nearly nine years,” Tetangco said.
He added that for institutions, the challenge is to develop and promote products suited to the needs of OFWs.
“Financial institutions should consider it their responsibility to inform OFWs of their rights and protection as financial consumers,” he said.
The BSP has been addressing the trend toward reducing risk among foreign financial institutions through cutting their remittance operations to multilateral groups such as the Financial Action Task Force, Alliance for Financial Inclusion, the Global Partnership for Financial Inclusion of the Group of 20, the US Department of Treasury, the Financial Stability Board, and the World Bank since 2014.
Tetangco said the BSP is also gathering data and closely coordinating with stakeholders concerned for a more evidence-based response.
“Among other things, we have an ongoing National Risk Assessment (NRA), which is an inter-agency effort to evaluate the country’s money-laundering and terrorist-financing vulnerabilities and weaknesses,” he said.
He said that, through the NRA, the BSP sharpens its focus in ensuring effective enforcement of international standards against money laundering and terrorist financing.
However, Tetangco expects technological innovations from the market o promise more cost-effective remittance channels.
“In today’s language, these are called disruptive innovations which are the act of creating new value chains from existing markets or value chains,” he said.
The advent of more affordable smart phones has encouraged new players such as financial technology companies, or FinTechs, and new business models to address the problem of cost.
“There are now online money-transfer services that are linking international remittances to Facebook. Customer acceptance of these developments seems likely. In a recent global survey that studied seven remittance corridors including US-Philippines, it was gathered that 83 percent of consumers are willing to shift to mobile money for international transfers,” he said. LUIS LEONCIO