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Payment System in the Philippines: Recent Developments Mario B. Lamberte Director of Research Asian Development Bank Institute 10 February 2009 Outline of the Paper • • • • Flow of funds Payment system in the Philippines Innovations in payment system and SMEs Global financial crisis, capital flows and payment system Table 1. Indicators of Funds Flow 1.M2/GDP (%) 46.7 2. Market cap – equity (% of GDP) 71.62 3. Outstanding bonds (% of GDP) 33.73 4. Total Trade (% of GDP) 85.38 5. Capital Flows (% of GDP) 18.4 6. Remittances, billion US$ 14.4 % of GDP 24.93 Table 2. Number of Financial Institutions, End-September 2008 End-September 2008 TYPE OF FINANCIAL INSTITUTIONS (FIs) TOTAL HEAD OFFICE OTHER OFFICES 21,952 7,279 14,673 7,811 835 6,976 4,330 3,847 3,417 415 15 38 17 11 3 3 4,292 3,830 3,406 412 12 483 397 70 16 21 7 3 11 462 390 67 5 1/ 1,331 80 1,251 C. Rural and Cooperative Banks 1/ Rural Banks Cooperative Banks 2,150 2,031 119 717 672 45 1,433 1,359 74 14,134 6,437 7,697 37 14 23 14,097 144 13,864 89 7 6,423 77 6,274 72 7 7,674 67 7,590 17 I. BANKS A. Universal and Commercial Banks Universal Banks Private Domestic Banks Government Banks Branches of Foreign Banks Commercial Banks Private Domestic Banks Subsidiaries of Foreign Banks Branches of Foreign Banks B. Thrift Banks II. NON-BANK FINANCIAL INSTITUTIONS A. B. III. With Quasi-Banking Functions Without Quasi-Banking Functions 2/ NSSLAs Pawnshops Others OFFSHORE BANKING UNITS 1/ Including Microfinance-Oriented Banks Refers to non-stock savings and loan associations Source : Supervisory Data Center, Supervision and Examination Sector 2/ Updated as of 10 November 2008 Payment Methods Cash (1) Payment Cards Internet Banking Credit card Debit card Stored value card Paper-based Checks (2) Electronic Payment (3) Mobile Phone Banking Philippine Domestic Dollar Transfer (PDDT) Electronic Peso Clearing System (EPCS) Philippine Payments and Settlement (PhilPass) Focus on two major developments: 1. Large-Value Transfer System - overcoming systemic risk 2. Small-Value Transfer System - overcoming SMEs’ lack of access Source: Bangko Sentral ng Pilipinas Unconventional Methods of Transferring Funds: Non-Banking Entities 1. Pawnshops - remittance 2. Cooperatives – access to ATM services 3. G-Cash – electronic wallet; banking product Leveraging high CMT density for mobile banking …. Figure 2. Telephone Subscribers, in millions Source: Globe Commerce CASE: Small rural bank Mobile Phone Banking Transactions, Green Bank 60 60 50 36.6 40 30 20 3.8 10 0 2006 Year 2007 No. of Transactions (in Thousand) Source: Greenbank.com, Philippines 2008 Value of Transaction (in Million Pesos) On the global financial crisis and capital flows…. Figure 3a. Outflows, Inflows, and Netflows of Direct Inv estment, Philippines 2005Q1-2008Q3, in million US dollars 2000 FDI holding… 1000 0 2005:1 2005:2 2005:3 2005:4 2006:1 2006:2 2006:3 2006:4 2007:1 2007:2 2007:3 2007:4 2008:1 2008:2 2008:3 -1000 -2000 -3000 -4000 Outflows Inflows Net Figure 3b. Outflows, Inflows, and Netflows of Portfolio Inv estment, Philippines¹ 2005Q1-2008Q3, in million US dollars 5000 4000 3000 2000 1000 0 2005:1 2005:2 2005:3 2005:4 2006:1 2006:2 2006:3 2006:4 2007:1 2007:2 -1000 -2000 -3000 -4000 Outflows Inflows Net 2007:3 2007:4 2008:1 2008:2 2008:3 Foreign investors pulling out; but residents repatriating capital.. Figure 4. Stock Price Index and Peso/Dollar rate, Philippines (end of Period) 2000M1-2009M1 Stock market price falls and currency depreciation.. 200 180 160 140 120 100 80 60 40 20 Stock Price Index NER Figure 5. Gross International Reserves, Philippines, in million US dollars, (end of quarter) Reserves holding…. 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Mar Jun Sep 2 007 Dec 2009M1 2008M9 2008M5 2008M1 2007M9 2007M5 2007M1 2006M9 2006M5 2006M1 2005M9 2005M5 2005M1 2004M9 2004M5 2004M1 2003M9 2003M5 2003M1 2002M9 2002M5 2002M1 2001M9 2001M5 2001M1 2000M9 2000M5 2000M1 0 Mar Jun Sep 2008 Dec Transactions had intensified…… Figure 7. Interbank Transactions at PhilPass Ja n 20 07 M ar 20 07 M ay 20 07 Ju ly 20 07 Se p 20 07 No v 20 07 Ja n 20 08 M ar 20 08 M ay 20 08 Ju ly 20 08 Se p 20 08 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Volume Amount (PhP, B) Some Issues For large-value payment system: PhilPaSS/RTGS ¾ provision of intra-day credit liquidity ¾limits to intra-day credit liquidity ¾collateralized or uncollateralized intra-day credit liquidity ¾basis for pricing such facility. For small-value payment system: ¾ participation of non-bank entities – regulatory regime ¾ consumer protection ¾flexibility in times of crisis