In order to speed up and improve the efficiency of provincial cheque clearing, to reduce the cost and risk associated with cheque payments, and to facilitate cash management for member banks, BOT set out to improve the provincial cheque clearing system.

Upgrading the provincial clearing houses to reduce the 3-7 days required to clear a cheque to a one-day clearing process. This entails expanding the clearing center coverage to include various districts within the province and some from a neighboring province. Originally the system only handled the civil district.

Moreover, operational efficiency is improved through the introduction of computer systems and various improvements in the interbank settlement process. Whereas originally BOT representatives at the provincial treasuries performed interbank settlements, now these operations are centralized through the BAHTNET system. BOT, in conjunction with the member banks, first upgraded the cheque - clearing center at Phuket on September 15, 1997, and has since expanded the program to all provinces.

Upgrading of provincial cheque-clearing houses is done according to the following regulations, guidelines and operating standards:

(1) Expanding the cheque-clearing coverage to include all districts in the province and some districts of nearby provinces. The domains are decided according to the economic relationship, the cheque-clearing traffics, and the viability of actually delivering the cheques to the clearing house for one-day clearing.

(2) The system is based on one-day clearing, meaning that the exchange of physical
cheques, interbank settlement and customer account crediting take place within the
same working day, and that customers can withdraw cash on the next working day.

(3) The nomination of a major bank branch as the representative for clearing.

(4) Net clearing positions are sent to BOT headquarters for settlement on a daily
basis.

(5) Computer systems are used to expedite the recording of cheque data and the
calculation of net clearing positions.

(6) For branches in the outbound or remote districts, facsimiles of returned cheques
can be exchanged for the return round, the process considered completed once the
physical cheques are later returned in the next normal round of clearing.

(7) Physical cheque delivery services are shared in order to save on operating costs.
With regards to the cheque clearing operations of the provincial clearing houses,
member banks of each province jointly set operating guidelines, roles and
responsibilities of each member bank, an agreement to which is signed and abided by
all member banks. Regulations employed in all provinces are generally identical
specification standards, differing only in some details, such as on matters of penalty
charges, etc.

As for centralized interbank settlement of provincial clearing houses, there is the Bank of Thailand Regulation on Settlement of Provincial Cheque Clearing System B.E. 2539 and as amended in B.E. 2540, which specifies the authority, roles and responsibilities for BOT in its capacity as the settlement service provider to member banks. The regulation also stipulates that member banks abide to BOT notification concerning guidelines, procedures, and timeframes involved in interbank settlement, issued as per the regulation on settlement.

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Members of a provincial cheque - clearing house consist of the BOT and commercial banks operating under the commercial banking law as well as specialized banks established under specific laws.

Daily operations of the one-day clearing system, using off-line computer systems developed by BOT for purposes of supporting member banks and clearing house operations.

Normal Round Clearing

When a member bank branch receives cheques deposited by customers, individual cheque information is entered into the system. The physical cheques will be sorted by bank, and sent to the main branch for compiling. The main branch sends the physical cheques together with the media containing cheque information to the clearing house by 1:30 p.m. The clearing house then prepares net clearing positions report for each bank branches. The in-clearing data is stored on media and is distributed to member banks together with a report. The net clearing positions combined with those from the return round will be sent to BOT via file transfer for settlement via BAHTNET within the same working day.

Return Round Clearing

On the next working day, the paying bank sort out returned cheques and enter the cheque information, together with the reasons for returning, to the system. For remote branches, facsimiles are used in place of sending in physical cheques. The main branch compiles the returned cheque information and delivers the returned cheques or facsimiles thereof, to the clearing house by 9:00 a.m. The clearing house then prepares net clearing position report for each bank branch. The information of the returned cheques is stored on media and distributed to banks together with a report. From there, the net clearing positions await those from the normal round for combined settlement on the same day.

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The necessary processing equipment includes:

1. Clearing House Side

Microcomputers with printers, fax modem, facsimile machines, backup power system (UPS), and telephone lines.

2. Member Bank Side

Microcomputers with printers.

For each upgraded provincial as well as district clearing house, BOT has developed the cheque settlement operations into a standardized, centralized system, one which enables more effective cash management by the member banks. By 3:00 p.m., clearing houses throughout the country send net clearing position information via file transfer to ECH, using encryption for data security.

At the ECH, the information will be decrypted and calculated for a net clearing position of each member bank. BOT regional branch will confirm the net clearing position with each member bank in the region. ECH will notify member bank headquarters of their net clearing positions by 3:30 p.m. and carries out settlement through BAHTNET by 4:30 p.m. Member banks with positive settlement balance can immediately use the funds.

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In order to reduce settlement risk in provincial cheque clearing, BOT encourages the use of a centralized settlement system. BOT charges a bank at a non-profit seeking fee of Baht 1,000 per bank branch per year.

BOT has drawn up contingency plans as follows:

(1) Each clearing house must procure computer, telecommunication, and electrical backup systems, and staffs must be trained to be able to replace each other and operate manually. Moreover, there must be protection measures against computer virus. In the same vein, member banks are also required to secure backup machines at the main branches, which must be able to handle equipment failures at the main branches themselves as well as at the smaller branches.

(2) Contingency plans must be developed for each clearing house and member bank. For example, should a member bank be unable to deliver the cheque data to the clearing house, whether due to recording failure at main or at any other branches, the main branch will report the net clearing positions against each bank in aggregate to the clearing house. Manual operations will be used in case the normal process fails to function.

(3) In the event that a clearing house cannot send net clearing positions to BOT via file transfer, use facsimile instead. Should the facsimile fail, use other means of communication, such as mobile telephones, radio communications, or if no other means is available, postpone settlement to the next day.