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Why a bank for migrant workers is a bad idea

(Article published in the May 31, 2006 issue of Manila Standard Today)

         Initially, I thought it was a good idea for the Overseas Workers Welfare Administration to infuse P1 billion into the Philippine Postal Savings Bank and convert it into a migrant workers’ bank.  Like any true believer in cheaper cost of services, I welcomed the announcement of President Gloria Macapagal Arroyo during a round-table discussion in March that the bank would charge less for handling the remittances of overseas workers.

       But now, I am prepared to recant.

        Seeds of doubt were immediately sown when my former classmate, Malacañang Press Secretary Ignacio Bunye stated the following day that “the transformation of the Philippine Postal Bank into a migrant workers’ bank signifies the appreciation of the Philippine government for its citizens working overseas and their families here at home.”  Why the overkill?   I am asking this question with no reference intended, of course, to the current dissemination of the ranks of the Left.

        If the proposal, championed by no less than the President, is sound,  then the confirmatory chorus ought to have come from the migrant workers themselves, not from Toting.  Something must be rotting in the state of Denmark, I surmise, when Toting immediately issued a statement echoing that of Mrs. Arroyo’s. Remembering his preemptive “I have two tapes” stellar performance during the run of the Hello Garci telenovela, surely there had to be a fault to be hidden or an  attack to be parried on Toting’s side.

        Less than two months thereafter, the problem became clear. House Deputy Majority Leader Eduardo Gullas called the proposal “rightful and appropriate”.  “Government is not trying to rule the banking industry or the remittance business.  Government is merely leveraging its resources to help drive down unreasonably high bank charges, including excessive remittance fees, for the benefit of migrant workers and their beneficiaries”, Gullas said.         

       I finally realize that the perceived problem was the alleged “unreasonably high bank charges, including excessive remittance fees.”  The presidential solution is a migrant workers’ bank with the mandate, I assume, to charge less. The expected result is that the fees being charged by the present  players in the  remittance industry will come tumbling down, all to the benefit of migrant workers and their families. 

          There are many reasons, none of them related to protecting the profits of remittance operations, why the idea is a bad one.

           In the first place, if the real problem was the level of the fees, why is creating a specialized bank solution?  Remittance fees are market driven. They reflect the market’s appreciation of the value of the service given and the players’ competitive measures to work within the parameters set by costs imposed by factors beyond their control, the acceptability of the rewards for the risks they assume and, of course, the law of supply and demand.  By what standards are the remittance fees measured to merit the labels “unreasonably high” and “excessive?”

           Secondly, the idea of a specialized bank which was in fashion at a time long past when in order to be counted as somebody in the Philippines, one had to own a bank, has already been shown to be discredited in theory and folly in practice. 

         Banking, as we recognize today with all its capital based regulations, good governance requirements  and antimoney laundering restrictions, cannot be a field with many small players.  By necessity, operating a bank a viable enterprise only for big participants who, because of the economies of scale, are less vulnerable to shocks and tremors that is natural to the banking system. These players are more capable of facing the unforgiving attrition wrought by foreign and local competition, and they have the resources and resiliency to adjust to the challenges posed by advances in technology as well as demographic behavior.

        The Philippine banking landscape confirms that theory.  Gone now are the banks that were initially conceived to serve narrow segments of the society, like planters, traders, or exporters.  In name only is the United Coconut Planters Bank a bank for coconut planters.  It is a bank that caters to all and sundry. At times, it does not even appear united.  Traders Royal Bank had long been traded away by its owners to one that is dedicated to the more general concept of commerce; everyone has in fact forgotten why it was called royal.  The Export Bank caters to exporters but deals with equal gusto with importers and inter-island traders.  And the Land Bank was not even intended to go into land banking.  It was by accident or design probably the first statutory universal bank.

      The only two specialized local banks still trying to buck the trend are in danger of, if not already at the threshold of, extinction.  Their principal depositor is the government and without those deposits those banks are goners. Moreover, the Philippine Veterans Bank is under attack even from many veterans and their families. The Al Amanah Islamic Investment Bank is on the “for sale” mode. 

      Finally, the proposed migrant workers’ bank’s infrastructure of capital and capability is in serious question. 

       It is suggested that the capital of the proposed bank be contributed, instead of the originally planned P1 billion from OWWA, by the Land Bank of the  Philippines and the Development Bank of the Philippines  to the extent of P700 million. The balance to make P1 billion is to come from the current Philippine Postal Savings Bank.

       Let us assume that both Development Bank and Land Bank can each spare P350 million in capital.  Both banks have their own overseas remittance operations.  Is it sound banking practice for them to invest in another entity that will, essentially, compete with them?

        My last question: How capable will the new bank be to act like a real bank?  The lure of the network of post offices numbering about 2,000 all over the country is also its obvious turn off.  Serious issues of security, internal audit and control, vital communication and transportation facilities and qualification of personnel manning those missionary posts immediately rise in mind-boggling proportions.     

       If, indeed, “exorbitant money transfer charges” is the problem, certainly a bank, so conceived and so dedicated by the President and her men, is obviously not the proper solution.  Examining why the charges are at the level that they are is a better first step.  And letting the market craft its own solutions is the more prudent way to proceed.