CHECK CLEARING OPERATIONS
1. Check Image Clearing System (CICS)
It was really a blessing that check truncation was implemented in April 2017 as we were ready when the crisis brought about by the Covid-19 pandemic hit the country in 2020. Almost all businesses globally have been restricted after world leaders implemented community quarantine in their respective countries to prevent the spread of the virus. Because of the restrictions imposed by the government, even banks have been limited not only in terms of branch openings but also with shortened banking hours.
With the timely shift of clearing technology into imaging, our Check Image Clearing System or CICS continued unhampered except for the shortened clearing windows. For banks that have implemented mobile check deposits, it was even more advantageous as CICS enabled their customers to deposit checks via mobile keeping them from travelling to the premises of their respective depository banks.
Without CICS, clearing transactions could have been limited to Greater Manila Area or NCR due to reduced flights nationwide. Checks deposited and/or drawn against regions other than NCR would have experienced longer clearing days pending physical delivery of checks for actual processing.
In spite of the imposition of community quarantine or lockdowns, limited opening of bank branches and earlier cut-off timelines, it was business as usual for PCHC as it operated in 242 clearing days with check clearing transactions processed of about 71% of the volume compared with the previous year.
1.1. Check Clearing Volume
Even with a promising economic outlook for 2020, the volume of checks for clearing in the early part of 2020 is just a little lower than that of the previous year. In January 2020, the volume of clearing items reached 16.1 million only 18,000 less compared to the clearing volume of January 2019. Similarly, in February 2020, the clearing items went down to 13.57 million – a little less compared to the volume of February 2019 of 13.66 million. Since those decreases are less than 1%, such are considered normal and insignificant.
In the middle of March 2020 however, the community quarantine was imposed in NCR. Many establishments were affected by the limited business activities and travel restrictions and as such, clearing volume significantly dipped to 11.3 million or 3.4 million items less compared to the volume of March 2019. By April, some establishments were severely affected by the enhanced community quarantine with some closing shop. Banks were operating under limited capacity due to the restrictions in the number of branches to open and the shortened cut-off timelines, resulting in the lowest volume ever recorded in the last five years. Clearing volume dived down further in April by 73% to a mere 4 million items compared to 14.9 million items of same month in 2019. The volume went up a little in May 2020 to 5.5 million items but was still 63% lower compared to volume of same month in 2019 (see chart below).
With the easing of quarantine in more areas nationwide, clearing volume went up to almost the normal level starting June 2020 towards the end of December 2020.
On a year on year, from a small gain of 0.15% or about 257,300 items in 2019, clearing volume in 2020 plunged by about 29% or roughly 51 million items lower compared to the previous year.
While the volume loss is significant compared to the previous year, it is important that the clearing facility was still able to service the banks and the banking public despite the pandemic restrictions.
Understandably, the significant decline in volume of clearing items likewise resulted to fewer items on daily average. From a minor increase of 0.15% in 2019, 2020 recorded a disheartening 28.5% decline in daily average volume of 519.3 Thousand from 726.3 Thousand in 2019, as seen in the chart below.
1.2. Check Clearing Values
Just like the clearing volume, check clearing values suffered a major setback. From ₱44.35 trillion in 2019, values of checks sent for clearing in 2020 amounted to an aggregate value of ₱32.05 trillion or 27.7% lower compared with the previous year. From a minimal but steady increase of clearing values since 2016, 2020 recorded a sudden drop mainly due to limited economic activities at the outset of the global pandemic.
1.3. Dishonored Items
While there is drop in clearing volume and values for fiscal year 2020, the number of dishonored items likewise demonstrated relative decrease in relation to the volume. Despite the crisis experienced, a substantial number of transactions remain funded.
In the chart below, the volume of returns went back to almost the 2018 level. From 12,844 monthly average in 2019, the monthly average went down to 11,481 in 2020. This is in spite of the surge of dishonored items during the first and second quarter of 2020 due to the imposition of lock downs where some clients could not go to the branch to deposit or fund their check issuances.
1.4. Volume of Returns vis-à-vis Previous Day’s Outward Volume
As expected, the percentage of returns in comparison to the previous clearing day’s volume progressively rose to 5.3% in 2020 from 1.8% in 2019. We attributed this increase due to dishonored items brought about by the financial woes suffered by most Filipinos because of sudden loss of income generating activities and industries alike, tourism, transport, housing and manufacturing not to mention the huge number of OFWs that were sent home.
1.5. Top 10 Reasons of Dishonor
The chart below may offer a better perspective as to what reasons consisted the 2020 return statistics:
Since the volume of clearing in 2020 fell to about 29% from previous year, returns only reached a total of 2.7 Million items in 2020 or 300,000 items less than in 2019. In the foregoing chart, notice that consistently, the top reasons for dishonor are funding issues, i.e. DAIF, CLOSED ACCOUNT, DAUD, as well as DUPLICATES and NO ADVICE OF FILE.
1.6. Breakdown of Clearing Volume
From roughly 46.4% of total clearing volume in 2019, the volume of items from Regions Outside Metro Manila grew 50.2% of the total volume in 2020. Items from Metro Manila, on the other hand, sank to 47.6% of the total volume from the previous 52% of the total volume recorded in 2019. Volume of Morning Returns made a modest increase and comprised 2.2% of the total volume in 2020 compared to 1.8% of the total volume previous year.
1.7. Breakdown of Clearing Values
In terms of Value however, the value of clearing items coming from Regions Outside Metro Manila comprises 31.9% of the total 2020 Clearing Values from previously 25.8% of the total clearing values in 2019. Clearing value of items coming from Metro Manila dipped and covers 67.1% only of the total clearing values for 2020 from previously 73.4% in 2019. Value of Returns slightly increased to 1% of the total clearing values of 2020 from previously just 0.8% in 2019.