BSP mulls tighter rules on trust accounts

BSP mulls tighter rules on trust accounts

Manila Standard Today
http://www.manilastandardtoday.com/?page=business03_jan06_2006
Jan 6, 2006
By Eileen A. Mencias

The Bangko Sentral ng Pilipinas (BSP) plans to tighten up banking rules to prevent banks from passing off some time deposits banks as trust accounts to avoid putting up reserves.

Sources said BSP has noted an increase in trust accounts of banks, specifically living trust accounts, prompting regulators to review current rules.

Trust accounts now fall under three classifications — administratorship, personal trust or others that totaled P209.25 billion in the third quarter of 2005 from P175.99 billion in the same period in 2004.

Administratorship trust accounts amounted to P29.192 billion in the third quarter of 2005 while personal trust accounts stood at P144.79 billion. Other trust accounts amounted to P35.27 billion.

Unlike deposits in which banks are required to put up reserves, living trust accounts are exempt from the reserve requirement currently pegged at 21 percent.

Banks will need to set aside at least P43.94 billion in cash in its vaults or in government securities for a deposit of P209.25 billion. The money set aside for reserves represent opportunity losses for banks as they can earn more if they invest them in securities.

BSP sources said the plan calls for the formulation of guidelines and minimum conditions on living trust accounts to prevent the circumvention of banks.

The conditions include a minimum term of more than 30 days, identification of a beneficiary and the purpose for creating the account.

Sources said living trust accounts are similar to a will in which the person who placed the money gives out specific instructions on who benefits from it and how the money should be used. The principals of real living trust accounts are usually absentee owners who create them to take care of their beneficiaries here.

BSP sources said some living trust accounts reported by banks have a term of only 30 days and function just like any other placement. The beneficiaries of some living trust accounts reported by banks are also the same person who invested the money.