More banks shifting to one-day check clearing

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People transact at a Bank of the Philippine Islands (BPI) branch in Makati, Philippines. May 24, 2013 Background:  The Philippine peso is expected to appreciate further and may hit 37.50 against the US dollar within the next 12 months, according to Goldman Sachs, citing the likelihood of a surge in foreign portfolio investments. The Philippines, together with its neighbors, would attract more foreign “hot money” on the back of rising global liquidity and optimism on Asia.

LENDERS have generally been able to adopt the one-day clearing for checks, although the central bank wants a faster processing time to make funds available by the start of the next banking day, its chief said.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. said Philippine banks have generally shifted to the one-day clearing for checks as mandated by the central bank which took effect late April, which makes use of digital processing versus the old method of physically transporting slips signed by clients.

The BSP chief, however, said there remains room to fast-track the clearing process further.

“The PCHC (Philippine Clearing House Corp.) is on the journey of check image clearing. It’s largely happening, but the one-day clearing makes the funds available in the afternoon. What we want is to have the money available by morning,” Mr. Espenilla said in an interview at his office in Manila.

“This is a change in the complex system and we’re getting there. We came from three days [clearing] so it’s a big leap.”

Mr. Espenilla said currently, most banks complete the fund transfers closer to the end of banking hours.

The BSP and PCHC announced the migration to the check image clearing system (CICS) in January which requires banks to accept digital images of checks as authority to move funds, coming from the old process that relies on the transfer of physical checks which took three to five banking days.

The BSP gave banks until April 21 to upgrade their computer systems and feedback channels for electronic check clearing, in line with the standards set by the PCHC.

Banks process an average of 700,000 checks daily, and could even rise to as much as 1.4 million during peak days, industry officials have said.

Mr. Espenilla has said that the rollout of the CICS went “relatively smooth” during its first month, but not all banks were able to immediately comply with the technical standards set by the clearing house.

The one-day check clearing scheme is expected to provide faster and more efficient way to access money for both consumers and businesses, which in turn could boost economic activity. The BSP is looking to move towards same-day clearing in the future, particularly with plans to set up the National Retail Payments System (NRPS).

Mr. Espenilla said checks would eventually be eased out as the NRPS kicks in, wherein payment messages will authorize money transfers to settle transactions.

Two clearing houses for digital payments are eyed to be rolled out by September, as banks and other financial players work to establish new platforms that would link their systems together.