Banks at a loss on BSP vs Comelec ‘money ban’ issue

MANILA, Philippines – Local banks are still waiting for further guidance from the Bangko Sentral ng Pilipinas (BSP) on how to proceed with the directive from the elections body regarding withdrawal limits supposed to start Wednesday, May 8.

On Tuesday, May 8, the Commission on Elections (Comelec), in a surprise move, directed the BSP and other financial institutions to limit daily cash withdrawals to P100,000 up to election day on May 13. This was meant to curb vote buying on the days leading to the general elections.

Banks are at a loss on how to proceed since the BSP’s statement late Tuesday said this Comelec directive goes against one of the cornerstones of the local financial system, which is the the bank secrecy law.

“Our regulator is the BSP. If we go against the bank secrecy law, we are answerable to the BSP, not the Comelec,” a top executive of one of the 3 biggest commercial banks in the country told Rappler in a phone interview.

In implementing the Comelec directive, banks servicing clients withdrawing more than the P100,000 limit will have to present the clients’ banking transactions to a 3rd party, violating the sworn secrecy between the bank and the client. This veil of secrecy is only pierced when the Anti-Money Laundering Council is triggered by suspicions that the funds are from illegal sources, and the bank account must be reviewed with the consent of a court.

“You have to look into individual bank accounts to monitor withdrawals,” noted Suzanne Felix, executive director of the Chamber of Thrift Banks.

Implementing the cap

The head of strategy at one of the top 5 banks in the country said implementing the cash withdrawal limit for over-the-counter transactions is easy since their system is computerized.

“It’s just a matter of adjusting the cap per branch withdrawal at the system in the head office, then all the branches nationwide can just follow that. Easy, just one click,” he said.

He likened it to the cash withdrawal limit that each bank set for their automated teller machines (ATM). Some machines allow only P10,000 per transaction, others set it at P20,000. Aside from the machine transaction limits, the banks’ central headquarters also set the total amount one can withdraw in a day.

The problem lies mostly with banks operating in the provinces. Some are still operating manually.

“While we recognize and support the Comelec’s efforts to ensure clean and honest elections, we are concerned that limitations or hindrances on withdrawals, check encashments, and transportation of cash may disrupt banking operations as well as normal business and commercial transactions in the country,” the thift bank chamber said in a statement. 

“They (banks in the provinces) are concerned about their clients, especially those that have to fund checks for urgent working capital requirements,” Felix told Rappler.

She said the small and medium enterprises, which are the niche clients of thrift banks, usually have more than one bank — a depository bank and a 2nd or 3rd bank that they maintain because they have buyers or sellers who prefer that all the parties they deal with be in the same payment system.

While the Comelec had said that transactions beyond P100,000 can be implemented through check payments, Felix said there is a timing issue.

Using a check to transfer funds from one bank to another needs 2 to 3 days to clear. That cannot work with checks due today that were previously issued as post-dated payments. These checks need cleared and withdrawable funds also today, otherwise, they will bounce.

Felix said the chamber is reaching out to the BSP to ask how they will address these situations.

Carrying cash

Felix said the banks in the provinces are also concerned about the Comelec’s move to limit to P500,000 the amount of cash being transported. 

The Comelec resolution said carrying or transporting such amount “shall be presumed for the purpose of vote buying and electoral fraud in violation of the money ban.”

“I just got a call from different provincial banks. They are concerned about complying with regulatory requirements, like the daily liquidity reserves, which they address by moving funds from one bank to another,” added Felix. 

Felix said they are talking with the BSP to include these cash movements in the list of exemptions.   

Comelec exempts “farmers, merchants, and other persons similarly situated,” as long as they present “proof of their occupation and the transaction which generated the cash exceeding the threshold.”

Capital controls

A bank executive lamented the surprise directive from the Comelec, noting that these same capital controls were just recently implemented in the troubled economy of Cyprus.

In March, the Cypriot government implemented banking curbs — limit on cash withdrawals at €300 (£253) per day and €1,000 limit per person going abroad — to prevent money from leaving the country. The capital controls, which were the first ever imposed on a eurozone member state, were introduced at a time when the government became nervous that a cash exodus would destroy what is left of its shaky banking system.

When the Philippine peso was strengthening against the dollar, slashing the earnings of dollar earners like the beneficiaries of remittance money, the business process outsourcing (BPO) industry, and the exporters, the BSP did not listen to clamor for capital controls.

The strong peso was the result of the influx of investments lured by the country’s economic growth exceeding 6% and improved credit ratings. The BSP, however, stuck to the usual monetary and regulatory tools — like cutting borrowing costs, banning foreign funds from special deposit accounts, and easing rules for outflows — to manage the financial system and its risks. – with reports from Lala Rimando/Rappler.com