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BSP to probe banks’ trust accounts |
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The Manila Bulletin 04/04/2005
The Bangko Sentral ng Pilipinas will investigate banks’ trust accounts in lieu of the "unusual and suspicious" increase in volume transacted through their so-called "living trusts." These living trusts are estate accounts provided by banks to protect their clients’ real estate holdings and manage these holdings as trusts for their heirs. But according to BSP Deputy Governor Alberto V. Reyes, based on the extraordinary volume now parked in these trust accounts, the central bank suspects that financial institutions are shifting their common trust funds to estate protection trusts. In the past, Reyes said these living trusts accounts have been dormant and transactions do not exceed P10 billion, but there is a possibility now that banks are putting their CTFs here instead of in the reserve-free unit investment trust funds or UITFs. There is an estimated P260-billion worth of CTF assets. "We will take a look at the details of these trust accounts." Reyes added. He said living trust accounts have become huge but declined to confirm how much volume it has now. At the moment banks hesitate to relax their trust exposures to avoid incurring losses since these assets are market-bound, such as in the stock market. The BSP said it expects the UITFs to completely replace the CTFs over time. Unlike CTFs, which are slapped with a 16 percent reserve, UITFs are not subject to reserve requirements and are not restricted by the single borrowers limit rule. While UTF accounts are completely free from reserves, the BSP will strictly govern the investments of such funds, which is limited to exchange listed securities. Reyes said the BSP made UITF more favorable because it offers clearer safeguards and are distinct from deposit substitutes. For flexibility, the trust funds – whose units are based on net asset value and are strictly market-determined, will also be offered in dollar-denominated forms. As part of safety features, the BSP also require UITF assets to be placed under third-party custody by BSP accredited custodians to protect investors from fund manager misconduct and to allow for an independent valuation of the pooled assets. According to Reyes, "we expect trust fund assets (of P260 billion to date) to grow significantly in the future as CTFs are replaced by UITFs. This resource pool can then serve as a major institutional player in the domestic capital market." |
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