Trust sector ready to absorb SDAs

MANILA, Philippines - The trust industry is preparing to absorb funds invested in special deposit accounts (SDA) to trust units, with some projected to go to deposits, as a result of a new Bangko Sentral ng Pilipinas (BSP) regulation limiting access to SDAs.

“More than a trillion pesos” in investment management accounts (IMA) are placed on the SDA, which the central bank wanted removed by Nov. 30, said Raul Diaz, vice-president of Trust Officers Association of the Philippines (TOAP).

“We will be winding down the IMAs into other investment outlets such as UITFs,” Diaz told The STAR in a phone interview.

“But some may also go to deposits because of issues in absorptive capacity. Not all may be absorbed by UITFs,” he added.

SDA- fixed-term deposits by banks and trust entities with the BSP- totaled P1.859 trillion as of May 3. The facility is used to mop up excess liquidity by offering higher returns versus other investment outlets.

The central bank however began “fine-tuning” the SDA recently by cutting returns by 150 basis points and prohibiting foreign funds. This was after it incurred record loss of P95.38 billion last year, partly due to higher interest expenses.

Its latest move, detailed in Memorandum 2013-21 issued on Monday, limited access by trust entities to SDA by allowing only UITFs and trusts, which are pooled funds from numerous investors held and managed by banks. In contrast, IMAs are singular accounts per investor.

Raul Victor Tan, senior vice-president for Treasury at Rizal Commercial Banking Corp., said the new move is also targeted at “reducing SDA levels.” As of November last year, BSP paid a total of P65.5 billion in interest to SDA deposits.

Maria Theresa Marcial-Javier, TOAP advisory board member, said the industry has been advised of the BSP’s action ahead of time. Diaz, for his part, said TOAP supports the move.

“This will be favorable to the economy as BSP said it wanted to develop the capital markets and buoy lending,” he explained.

ING economist Jose Cuyegkeng, in a statement, agreed to this observation.

“We expect some of the funds would move into the real economy as deposit rates of banks are not as attractive as SDA rates.”  We reckon that the M3 impact would be modest at least while saving. BSP around P5 billion in interest expense,” Cuyegkeng said.  - With Ted Torres