BSP to limit access to SDA accounts

MANILA, Philippines - Retail investors will have limited access to special deposit accounts (SDA) starting January after the Bangko Sentral ng Pilipinas (BSP) tightened rules on trust entities parking funds in the facility.

“The BSP recently completed a review of the SDA facility as part of its continuing efforts to fine tune its monetary policy instruments and thereby gain greater flexibility in conducting monetary operations,” said Memorandum 2013-021 issued on Monday.

Beginning Jan. 1, 2014, only funds in trust accounts and unit investment trust funds (UITF) will be allowed to park on the SDA, the central bank said in the memorandum.

“Other fiduciary business including agency accounts and investment management activities (IMA) shall no longer have access to the said facility,” it added.

Introduced in 1998, SDA are fixed-term deposits by banks and trust departments with the BSP, which uses it as a tool to siphon off excess domestic liquidity that could stoke inflation.

Over the years though, the facility has attracted trillions in money as it offers much higher rate compared with other safe investment vehicles such as bonds. BSP data showed SDA deposits totaled P1.859 trillion as of May 3.

Maria Theresa Marcial-Javier, advisory board member of the Trust Officers Association of the Philippines, said the new BSP order means banks “can no longer offer” SDA to retail investors through IMA.

Local lenders and their trust departments have offered SDA products to depositors, who are seeking higher returns in a low interest environment. The “most common” of which is through IMA, said Mario Miranda of the Bank of the Philippine Islands (BPI) Asset Management.

For instance, BPI offers SDA through an IMA with a minimum investment of P1 million. The same could be availed from other banks such as BDO Unibank Inc., Philippine National Bank and Security Bank Corp., among others.

However, investment in SDA could also be made through UITFs, or a pool of fund owned by “numerous” individuals or entities managed by the bank, Miranda said.

“Generally there are two types of products. But IMA is not necessarily a pool of fund. It can be a contract between two parties only,” he said in a phone interview.

Also, UITFs are considered “owned” by banks. Ownership of the IMAs, on the other hand, remains with the investor, with the bank only acting as an “agent.”

Raul Victor Tan, senior vice president for Treasury at the Rizal Commercial Banking Corp., said the new BSP rule is again meant to “reduce SDA levels,” following three cuts on the facility’s interest rate this year.

The BSP has reduced the SDA rate by a total of 150 basis points to two percent. As a result, deposits have declined by 6.25 percent from its peak of P1.953 trillion in April 12, figures showed.

According to the BSP, trusts should wind off 30 percent of their disallowed SDA placements by the end of July and that “any remaining balance” after that should be removed by Nov. 30.

To monitor compliance, notarized letters of undertaking should also be submitted by the entities in August and December. Before that though, banks should submit the same by May 31 detailing their current SDA exposures.

“Whenever the BSP has reason to believe that a bank, its trust department or any trust entity is unwilling or unable to comply with this memorandum, the BSP may limit, suspend, or deny access… to the SDA facility,” it said.