Philippine banks streamlining cash management strategies

Since early 2001, the Philippines has seen improved political stability. However, government administration and legislative problems, allegations of corruption, and ongoing difficulties with rebel groups of the country continue to provide the new Macapagal-Arroyo administration with substantial challenges. Although the government cut its gross domestic product (GDP) forecast for 2001 to 3.3 to 3.8 percent from 4.2 percent, there are a few encouraging developments in the economic front.

In mid-2001, the budget deficit narrowed, albeit nor substantially. Shortly afterwards, the Philippine peso started to appreciate, hopefully in a sustainable manner, and the administration is now focused on more economic-related initiatives.

The Bangko Sentral ng Pilipinas (BSP or the central bank) oversees 53 commercial banks (18 of which are foreign banks), four specialized government commercial banks, and a number of other institutions (including several thrift banks, rural banks, and non-bank financial institutions).

The BSP provides policy direction in the areas of money, banking and credit. It exercises regulatory powers under the Monetary Board (MB) with limited government membership to ensure greater independence and a more active role for the private sector in the economy. These regulatory powers are generally achieved through the instruments of reserve requirements, discounting policy, open market operations, and moral suasion. It also identified settlement trade, foreign exchange and electronic banking, among others.

Corporations have deposit facilities available to them in the form of peso current and savings accounts, US dollar current and savings accounts, and savings accounts in other currencies. In addition, placement savings and time deposits are available. As for borrowing, a single borrower’s limit (SBL) is set – a loan should not exceed 20 percent of the lending bank’s unimpaired capital and surpluses. Foreign companies are allowed peso borrowings and there are no interest ceilings set in the Philippines.

For chief finance officers (CFOs), and corporate treasurers, the task of creating an efficient cash management system is a critical factor in achieving financial soundness. In a dynamic and changing environment such as the Philippines, it is ever more critical for a corporate’s cash management strategy to be correctly positioned. With corporates having to tackle both regional and local growth issues, the need for strong financial support from the banking sector is crucial.

Corporates are now beginning to look beyond just the features of a bank’s products and services. Now they are judging banks both on the basis of their individual corporate requirements, and on the ability of the bank to offer services complementary to their cash management activities. Banks are required to offer solutions that are more all-encompassing than ever, and of greater tailored benefit to a corporation. A major factor in the choice of a bank is the ability to deliver cash management solutions, and the methods of packaging the various products and services. Obviously, more comprehensive solutions spell success for bankers. For this reason, banks in the Philippines have begun to formalize their own dedicated cash management teams.

One of the most notable developments among corporations in the Philippines, especially among multinational corporations (MNCs), is the streamlining of banking relationships. Rationalizing the number of bankers a corporation has is often the first step towards an effective cash management strategy and, for MNCs, is frequently a result of a global or regional directive. The step comes as a result of a desire to focus on bore businesses, improve competitiveness, and maintain sound financial management.

From the corporation’s perspective, it is not surprising that banks are often seen to be only an extension of a cashiering function, particularly in the area of payments and collections. But it is becoming evident that corporations now require integration of these services into their own financial systems. Integration implies faster reconciliation of receivables and more timely payments. More importantly, a bank’s ability to forecast its customers’ cash requirements (given a historic pattern of collections and payables) becomes a vital factor in whether it will be considered as that corporation’s lead banker.

The cash management requirement of Philippines corporates are better served today than hitherto, not only through measures introduced by the BSP but also because of initiatives taken by banks themselves. Foreign banks are fully implementing services they offer globally and are developing customized solutions to address the requirements of Philippnes corporation adding greater value to their undertakings. For local banks, tie-ups with international banks are now quite commonplace. (To be continued)