BSP urged to watch UITFs

P230-B INDUSTRY'S 'CRISIS' MIGHT SPILL OVER INTO BANKS
By Jun Vallecera
Reporter

 

PRIVATE bankers fear the worst on unit investment trust funds and the disaster now taking shape in the P230-billion industry and urged the Bangko Sentral ng Pilipinas on Wednesday to tighten regulations to prevent possible spillover onto the banks themselves.

Senior executives said UITF investors have engaged in panic withdrawals since last week when average returns fell from around 21 percent to just a fraction of the amount at present.

Their greatest fear is that trust units, under pressure from anxious and severely disappointed investors, would be forced to run to their parent banks for immediate liquidity support.

A senior monetary official said the bank proper is prohibited from extending such accommodations and can do so only under pain of BSP sanctions, such as immediate loss of certain privileges like access to the BSP’s rediscounting window and substantial monetary penalties.

“The BSP should tighten regulations and watch the level of bank deposits, particular on those banks that also operate UITFs,” said a private banker who requested anonymity.

Colleagues said the UITF tempest is threatening to become a full-blown crisis, and urged the BSP to keep a keen eye on deposits for more than the usual signs of stress.

“There used to be flight from regular deposits into UITFs but now people are withdrawing en masse, panicking that rates have gone down so quickly in just two weeks,” a senior bank executive said.

“Apparently, most were not properly informed that UITF returns are marked to market and that the net asset value per share changes daily.

“The volume of withdrawals is very significant,” the official said, not daring to cite a number.

Regulations prohibit banks from extending accommodations to their trust units and those that do so are mandated to provide reserve buffers to discourage just such transactions.

Private bankers said trust products are not deposits secured by a guarantee from the Philippine Deposit Insurance Corp., and that some UITF investors apparently have not been told enough—and there lies the problem.

A monetary official said the banking public, in this case really middle-class individuals with substantial surplus income on hand, “must especially look out for bank products offering above-market returns.”

“When banks offer you substantially more return than competitors were giving out, [that] is indicative of banks with lots of problems. You should be especially wary of those,” the official said.

He noted it was BSP governor Gabriel C. Singson who ordered for the then popular common trust fund (CTF) to provide cover, as regulators found the CTFs were funding the speculative activities of banks on the then mightily struggling peso.

Monetary officials fear money withdrawn from UITFs may shift toward the currencies market in search of better yield. “The BSP should watch out for that also,” officials said.

 

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