Remittances face threat of de-risking – BSP

Global banks wary of money laundering, terrorist financing

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said the country’s major source of foreign exchange is at risk as various countries have enforced stricter regulatory measures on remittance business in compliance with the Financial Action Task Force (FATF) guidance.

Based on the BSP’s Status Report on the Philippine Financial System for the first half, the remittance sector faces the threat of de-risking by global foreign banks.

The FATF generally referred to de-risking as a phenomenon where financial institutions terminate or restrict business relationships with clients or categories of clients to avoid, rather than manage, risk in line with FATF’s risk-based approach for money service businesses.

The BSP pointed out the FATF guidance has prompted some financial institutions to terminate business relationships with clients to avert money laundering and terrorist financing risks.

The central bank added some banks wanted to avoid an over concentration to a particular type of risk such as correspondent banking.

“The issue on de-risking activities of global foreign banks, if not properly resolved, may have an adverse impact on remittance flows,” the report stated.

Data from the BSP showed cash remittances from overseas Filipinos grew six percent to a record $24.35 billion last year from $22.98 billion in 2013 on the back of the strong demand for skilled Filipino workers abroad.

The amount of money sent home by Filipinos abroad inched up 4.1 percent to $18.41 billion from January to September compared to $17.68 billion in the same period last year.

The growth of cash remittances bounced back in September, increasing 4.3 percent to $2.2 billion from $2.11 billion in the same month last year after contracting in August.

Remittances last August declined 0.6 percent due to the depreciation of some currencies including the euro, Canadian dollar, and the Japanese yen, reducing the dollar equivalent of remittances sent home from host countries.

That was the first time since April 2003 when the amount of money sent home by Filipinos to their loved ones in the Philippines contracted by 10.9 percent.

The Association of Bank Remittance Officers Inc. (Abroi) and the Association of Private Remittance Services Companies Inc. (Appraise) – two of the country’s biggest remittance organizations – have banded together to jointly ask the BSP as well as the World Bank and the Asian Development Bank to formally appeal to these developed countries which have shut down their respective remittance business.

Both groups are alarmed over the move by developed countries including the US, Australia, New Zealand, and the United Kingdom to shut down remittance firms due to suspicions that these are being used to funnel funds to terrorists.

The BSP said in the report universal banks in the Philippines continued to sustain operations abroad as major remittance channels but face the threat of de-risking activities by global foreign banks.

Overseas bank offices are clustered mostly in the Middle East with 43.5 percent followed by Asia Pacific with 37 percent, North America with 10.9 percent, and Europe with 8.7 percent.

In the Middle East alone, banks have 20 offices of which 14 offices are remittance desk offices reflecting the strong remittance inflows coursed through the banking system.