philippines remittance industry report 2006 modified

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Kowloon, hong kong

June 2006

Makati City, PhilippinesCellPhone: (63) 0918-6565323

Email: [email protected]

w w w . b u si n e ssp l a n n e r s. vze . co m

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PROPERTY

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BUSINESS PLANNERS

www.businessplanners-phil.com

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REMI TTANCE I NDUSTRY

( J u n e 2 0 0 6 )

BACKGROUND OF THE STUDY /HI GHLI GHTS

Part I. Present Economy-Philippines 1-5Economic OutlookAn Overview of the Investment ClimateMacroeconomic FundamentalsGovernance and InstitutionsInvestment Trends and Policy ReformsRemittances: An Important Source of Income

for many families

Part II. Banking System and ATMs 6-7

Part III. Foreign Remittance 8-11Context and DefinitionsPhilippine Migration and RemittancesRemittance Flows

Part IV. Profiles of the OFWs 12-14Socio-Demographic ProfileRemittance Behaviour

Part V. Remittance Players - Philippines 15-17The Philippine BanksPhilippine Money Transfer AgenciesInternational Money Transfer Agencies

Part VI. Remittance and Pricing Structures 18-19

Part VII. Developments in the Remittance Industry 20-22New PlayersTrends

Part VIII. New Remittance Products 23-28

Part IX. BSP Regulation on FOREX and Remittance Agents 29-34

ANNEX

Tables and Figures

News/Articles on Remittance Industry

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Remittance Industry Report 2006

Lotus Forex, Limited, a long-standing Hong Kong-based company involved in

Currency Export and Import is looking into the possibility of entering the Philippinemarket vis--vis exporting Peso and other currencies out of the country and toimport Forex into the Philippines.

Based on this immediate plan, Lotus Forex, Limited, has commissioned BusinessPlanners to conduct a Market/Industry Research, specifically on the PhilippinesMoney Remittance and Exchange Industry.

Seeing the requirements of the client, Business Planners, through research activities,have provided information by covering the following areas:

1) Overall performance of the Industry;2) Major players/competitors;

3) Medium on how they are reaching and tapping into the market;4) Data on Rates/Charges implemented by the competitors;5) Documentation on Growth factors/Areas of concentration (vicinities);6) Industry updates from actual Local Publications.

A considerable portion of research activities was undertaken by acquiring relevantdata from the following institutions:

Bangko Sentral ng Pilipinas (BSP) Central Bank of the Philippines National Statistics Office (NSO) Asian Development Bank Securities and Exchange Commission (SEC)

Further, Internet and desk research were the main mode in composing the Market/Industry research report submitted for Lotus Forex, Limited.

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2002 2003 2004 2005 Growth

Processed OFWs 817,734 855,993 867,009 3%OFW Remittances ('000 US $) 7,578,458 8,550,371 10,689,005 13%

Exchange rates Dollar to Peso 51.61 54.20 56.04 55.01

Mar 2006 Feb 2006 Mar 2005Bank lending rates(WAIR in percent per annum)

9.72 9.60 9.69

Peso savings deposit interest rate(% per annum)

3.77 3.46 3.80

OFW REMITTANCES IN ASIA (2005)(In 000 US$) US $ 1,172,373Hong Kong 338,895 29%

Japan 356,659 30%

Korea 99,710 9%Singapore 240,149 20%Taiwan 86,551 7%Other Asian Countries 50,409 4%

N ew Rem i t t anc e Produc t s i n t he Ph i l ipp ines

Wells Fargo PARA RCBC Money Direct Times of Money Indian IRemit Visa Electron Philippine National Bank 7/11-Citibank Yahoo Paydirect Bank of America Salesend Xoom/Paypal/Equitable PCIBank Citibank New Access, Global Transfers My Ayala Philippine Electronic Postal Money Order (ePMO) IKOBO OFW Visa E Card Smart Padala IRNet G-Cash

G-Tel (powered by G-Cash)

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Remittance Industry Report 2006 6

II. BANKING SYSTEM AND ATMs

The Philippine banking system continued its steady growth in the first half of 2004

broadly in phase with the economy. Total assets expanded by 9.7 percent from ayear ago to reach P3,873.3 billion as of end-June 2004. Asset growth was mainlysupported by deposits, which rose by a 7-year high of 8.3 percent to reach P2,591.4billion, as well as by borrowings. Overall leverage increased as capital accountsincreased more slowly by 4.1 percent. Nevertheless, liquidity remains comfortableand capital adequacy remains well above the minimum.

The total operating banks consisted of 42 universal and commercial banks, 89 thriftbanks (vs. 93 at end-June 2003) and 765 rural/cooperative banks (vs. 771 at end-June 2003).

Innovations in e-banking services were a major driving force for change in the localbanking industry. With e-banking, customers can perform transactions through a

variety of popular interfaces including the Internet, web enabled cellphones and PDAdevices (personal digital assistant). These improvements further enhanced customerconvenience by making banking transactions feasible on a 24 by 7 basis from theworkplace, from the home, and indeed from wherever the customer can use a mobilephone. The mobile phone is emerging as a potential major payment instrument torival m ore established credit and debit cards.

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Migrant remittances provide the most direct, immediate, and far-reaching benefit to

overseas workers, their families, and their countries of origin. Despite the social andother costs of migration, many families of overseas workers, particularly those in thelow-income sectors, rely on remittances as the major- if not, the main or primarysource of funds for their basic or daily needs.

Annual remittances to developing countries more than doubled between 1988 and1999, pushing officially reported remittances approximately 20% higher than officialdevelopment assistance. Between 1995 and 1999, three of the top 15 developingcountries in terms of remittances received were from Asia India, Philippines, andThailand.

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Remittance Industry Report 2006 1 5

A. THE PHI LI PPI NE BANKS

In the first few years after the start of organized overseas deployment, OFWs haddifficulty accessing remittance services of host country banks. Philippine banks,courier companies, and informal money transfer providers filled the gap. PhilippineNational Bank (PNB) started their remittance service in the early 1970s through theirforeign offices, while several Philippine courier companies provided remittanceservices, including door-to-door deliveries, as an adjunct to their cargo business. Inthe early 1980s, more banks, such as the Bank of the Philippine Islands (BPI),Philippine Commercial and Industrial Bank (PCIBank), Metropolitan Bank and TrustCompany (MetroBank), and Allied Banking Corporation established offices andremittance partnership overseas.

Today, we see a convergence of services offered by Philippine banks, licensednonbank money transfer agencies, courier and cargo companies, and ethnic storesthat act as agents for banks. Different alliances have been formed and partnershipsamong stakeholders have become common.

All the major Philippine banks in the remittance business offer door-to-door services,while most nonbank agents are promoting bank credit-to-account transfers.

Currently, 17 Philippine financial institutions are involved directly in servicing

remittances of OFWs through their branches, affiliates, or agents in 30 countries. Ofthe 44 commercial banks, 16 are involved in remittances. Only four of the 92 thriftbanks handle remittances.

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PNB holds the largest share of the market, while each of the other banks handles atleast US$ 700 million annually. Most of the banks have segregated the remittance

business from their banking operations, and have set up separate operating facilitiesand corporate entities in the Philippines and overseas. (refer to above table)

A reliable list of entities engaged in the money transfer business is difficult to obtaindue to the involvement of at least five Government agencies in a registration processthat is not electronically interconnected. Furthermore, registration forms in some ofthe key agencies do not require applicants to specify that they are in the moneytransfer business.

Most of the Filipino companies now engaged in money transfers started as cargocompanies, quite a few still handle cargo and remittance transactions for Filipinooverseas. In the succeeding years, Filipino companies were established toconcentrate purely on remittance services. Several companies, including I-Remit,Inc. and LBC Express, Inc are considered significant players in the industry, handlingremittance volumes ranging between US$25 million and US$ 500 million each

annually.

These companies have longer business hours than formal institutions, are nearer andmore accessible to remitters, and offer banking services to remitters through theirpartnership with banks.

B. PHI LI PPI NE MONEY TRANSFER AGENCI ES

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TYPES OF TRANSFER MECHA NI SMS

The table below compares different types of transfer mechanisms offered by banksand nonbank institutions in the US, indicating the price, speed of delivery, andwhether the product requires a deposit account for the remitter and the beneficiary.The comparison suggests that the credit-to-account system offered by Philippinebanks is the most competitive in cost and speed.

The comparison exclude foreign exchange spreads, which usually range from 1% to1.25%. However, some international money transfer companies have spreads thatrange from 2% to 2.7%

Certain characteristics of these transfer mechanisms bear emphasis:

A) First, most of the products do not require bank accounts for thebeneficiary. As such, the product performs simply as a remittancemechanism without introducing remitters and their families to banking,savings, investment, or other financial products and services.

B) Second, the somewhat low usage of door-to-door services might beattributed to the greater use of ATM and other low-cost bankingproducts heavily marketed by banks. Nonetheless, door-to-doorservices will continue to be used as long as some remote areas areunderserved by banks.

C) Third, transfer fees from the US to the Philippines involving thepayment of proceeds in US dollars are higher than when proceeds arepaid in pesos, due to the absence of a foreign exchange spread on thedollar-to-dollar transaction. However, these costs are still lower thanwhat remitters have to pay US banks, which is US$35 $45 comparedto US $6-$15 if done through Philippine banks. b

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NEW REMITTANCE PRODUCTS


VIII. NEW REMITTANCE PRODUCTS

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NEW REMITTANCE PRODUCTS



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IX. BSP REGULATION ON FOREX

AND REMITTANCE AGENTS

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philippines remittance industry report 2006 modified

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