BSP allows rural banks to offer FCDU services

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BSP allows rural banks to offer FCDU services
Posted: 0:16 AM | Mar. 13, 2006
Doris C. Dumlao
Inquirer

Published on Page B2 of the March 13, 2006 issue of the Philippine Daily Inquirer

TO ENCOURAGE OVERSEAS FILIPINO workers to send their remittances through formal channels, the Bangko Sentral ng Pilipinas has allowed rural banks to handle foreign currency deposit units (FCDUs).

BSP Deputy Governor Nestor Espenilla Jr. said the Monetary Board had agreed to allow deserving rural banks to accept foreign currency deposits and match these liabilities by lending in foreign currencies.

FCDUs, considered the country's secondary layer of foreign exchange reserves, were in the past exclusively handled by big commercial banks. In 2004, the BSP allowed thrift banks to handle FCDUs.

By allowing rural banks--the smallest sub sector in the banking system--to also handle FCDUs, the BSP hopes the formal channel will be able to capture the bulk of the OFW remittances sent to the countryside.

Espenilla said rural banks were keen on offering FCDU services. But to obtain an FCDU license, Espenilla said the rural bank must pass stringent requirements, including the minimum capitalization of P20 million.

He noted that even among thrift banks, only 24 out of 84 were currently licensed by the BSP to handle FCDU accounts.

There are at present more than 700 rural banks in the country.

The government earlier estimated that out of the total OFW remittances, about 25-30 percent or $2.5-$3 billion was being coursed through informal channels.

An Asian Development Bank study showed that about 38 percent of recipients in the Philippines prefer the informal method, primarily due to lower transaction costs.

But the country's remittance system has significantly improved, with banks now using state-of-the-art technology to lower the fees and charges and better compete with the informal couriers.

There are about eight million OFWs deployed abroad, of which three million are permanent residents.

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