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BSP notes unusual increase in living trust accounts of banks |
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By Des Ferriols
The Philippine Star 04/04/2005 Following the phase-out of common trust funds, banks have been shifting en masse to other lightly-regulated trust accounts, prompting the Bangko Sentral ng Pilipinas (BSP) to warn that it would soon crack down on these instruments as well. The BSP reported over the weekend that there had been an "unusual increase in the living trust accounts of banks" shortly before and right after the effectivity of the rule that required banks to convert to unit investment trust funds (UITFs). According to BSP Deputy Governor Alberto V. Reyes, the BSP had begun looking into living trusts and other trust accounts to determine if banks are merely shifting to these other forms of trust accounts instead of converting to UITFs. Before the effectivity of the new BSP rules on UITFs, Reyes said living trusts amounted to less than P10 billion. Since November to December, however, he said the total living trusts have more than tripled. "These accounts are not covered by the mark-to-market rule," Reyes explained. The UITFs are supposed to be improved versions of the common trust funds or CTF and could be compared to a mutual fund that pools the investments of small investor into a larger fund under the professional management of the trust entity. Because the pool is larger and managed by professional fund managers, it has access to investment opportunities not normally available to individual retail players. Unlike CTFs, the UITFs are not subject to reserve requirements of the BSP and would not be considered in the calculation of a bank’s single borrower limit. However, UITFs are covered by stricter safeguards that effectively distinguish it from deposit substitutes, particularly the mark-to-market requirement and to fully inform their prospective investors of their investment strategy including what kind of investments they plan to put the money into. Instead of shifting their CTFs to UITFs, however, Reyes said there were indications that banks and other trust entities were instead shifting to other trust accounts, specifically living trusts. Living trusts are trust accounts specifically for estate planning intended for assets left behind by the owner of the trust for his or her heir or heirs. Reyes said the BSP would have to examine if the sudden rise in living trusts really involved actual estates with estate management plans. "They might just be using living trusts as deposit substitutes," he said. If the BSP finds that these accounts were actually deposit substitutes, Reyes said the BSP would consider them deposit substitutes which are covered by higher reserve requirements. |
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