MANILA, JUNE 28, 2006
(STAR) (AFP) Billions of dollars of remittances by maids and other migrant workers in Asia's wealthier economies bypass the region's banking systems, according to an Asian Development Bank study released Tuesday.

The Philippines-based ADB said remittances averaging 100-500 dollars a month per guest worker could be leveraged as a financial tool to develop the labor exporting countries if the funds were channeled through the formal banking system.

"The opportunities offered by banking, in the form of credits, long-term savings and insurance among other products and services, are missed by most financial institutions in both the sending and receiving areas," it said.

High transaction costs of between four and nine percent of the amount sent, poor education, as well as regulatory factors are to blame, it added.

"The stricter the rules (on remittances) ... the more informality exists in the marketplace."

It said much of the remittance money flowing between Singapore and Malaysia, which the ADB estimated at 1.1 billion US dollars per year, "is transferred through physical means."

It said more than a third of Indonesian maids in Singapore "do not have bank accounts in their home country ... (while) half of Filipino workers in Hong Kong do not."

If the workers use the banking system, "the portion of remitted money that remains in recipients' bank accounts could potentially be mobilized through short-term placement of savings in a money market, or investments in securities including government bonds" or through lending to recipients of remittances.

The ADB urged the governments of labor exporting Asian countries to "lift restrictions requiring emigrants to use employment agencies," noting that many Filipinos and Indonesians rely on these headhunters for overseas job placements.

"It is not unusual for agencies to charge high fees which leave little surplus for transferring back home."

Meanwhile, the Philippines central bank said Tuesday it has ordered banks and other remittance service providers to disclose transaction costs and fees for money transfers.

The regulation would allow the users to "make informed decisions on how best to effect money transfers," provides incentives to lower fees to remain competitive, and "in turn would maximize inflows through formal channels," a central bank statement said.

Asia's bank systems stable though China faces rising vulnerability, says S&P 06/27 1:00:54 PM

HONG KONG - Banking systems in Asia have achieved a good measure of stability although that in China is facing increasing vulnerability from rapid credit expansion, said Standard & Poor's Ratings Services Tuesday.

"The situation in Asia reflects the improved financial profiles of banks across the region," said Standard & Poor's credit analyst Ritesh Maheshwari.

"Healthy macro factors and strong earnings have boosted bank performance and lifted asset quality in the past few years, and risk-management practices and regulatory environments generally have strengthened," Maheshwari noted.

Nevertheless, Asian banking systems continue to face medium-to-high economic and industry risks, unexpected shocks, and the inevitable future cyclical slowdown.

"An economic slowdown would be the litmus test for the banks' credit-risk-management systems, though it should be noted that banking systems will face the potential challenges from a position of strength, given the structural improvements made since the Asian financial crisis," said Standard & Poor's credit analyst Ping Chew.

China's increasing vulnerability of the banking system reflects high economic and industry risk in the sector, despite improvements in its fundamentals in the past few years, said Chew.

"Although the banks in China are increasingly operating on a commercial basis, their developing credit and risk management systems are likely to be severely stretched by rapidly changing economic conditions and the relatively high gearing of the corporate sector," said Standard & Poor's credit analyst Ryan Tsang.

A rapid rise in interest rates or renminbi could further stretch China's embryonic banking system.

Standard & Poor's estimates that if the Chinese renminbi appreciates by 25% and interest rate increases by 200 basis points-- both rapidly-- the corporate sector's net profit could decrease by about one-third and the banking sector's NPLs ratio could rise by up to nine percentage points, should both sectors fail to take any countermeasures to mitigate risks and losses.

Chief News Editor: Sol Jose Vanzi

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