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Trust Industry Report: Still getting bigger

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The origins of the trust industry in the Philippines date back to 1918, the year an entity called Philippine Trust Company was created to manage the properties owned by Americans in the country, according to the Trust Association of the Philippines (TOAP), founded in 1964 to, among other things, promote the trust and investment management industry. Trust services grew gradually in popularity since then.

The association pointed out that the roughly eight-year period starting in 1983 and ending in 1991 was a particularly prosperous phase for the trust industry as it expanded rapidly: It turned over P18 billion in 1983, and did more than five times as much in 1991, hitting the P100-billion mark.

It is now a multitrillion-peso industry. According to the latest report of Bangko Sentral ng Pilipinas (BSP) on the Philippine financial system, which covers the first semester of 2017, the trust industry’s total assets grew 10.4% to P3.127 trillion, and this amount represented 22% of the total assets of the country’s banking system.

The double-digit growth happened despite BSP’s announcement in November last year that it would discontinue trust entities’ access to its two deposit facilities — Overnight Deposit Facility (ODF) and Term Deposit Facility (TDF). Trust entities were given until the end of June 2017 to wind down all the investments they placed at BSP.

“The restriction underscored that the BSP deposit facilities are used as monetary policy tool for managing domestic liquidity and not as investment outlet of the trust entities. This in turn will facilitate the flow of funds to more productive activities,” the report noted. A total of P427.5 billion of placements to the aforementioned deposit facilities were already transferred to deposits in banks and financial assets.

Sixteen universal banks’ trust departments were responsible for 63.8% or P1.995 trillion of the total trust assets, while non-bank financial institutions, composed of four investment houses and two independent trust corporations, contributed P741.2 billion or 23.7%. The rest came from commercial banks (11.1% or P348.6 billion) and thrift banks (1.4% or P42.8 billion).

A large majority of trust assets worth P1.78 trillion were invested in financial assets. Meanwhile, investments in equity securities rose 11.9% to P877.8 billion. This increase indicated a partiality for higher-yielding instrument given the volatilities in the financial market, the report noted.

The number of financial institutions with active trust operations continued to dwindle, falling to 36 as of end-June this year from 39 as of end-June 2016. This was the result of a constant effort to remove those institutions with dormant licenses (four such institutions gave up their license during the first half of the year) and the establishment of a new trust entity (Bank of the Philippine Islands spun off its trust department, which has now been operating since February this year as BPI Asset Management and Trust Corp.)

A P134.6-billion increase in agency accounts was the primary cause of the expansion of trust accountabilities to P975.9 billion as of end-June 2017. “The year-on-year increase in Agency Accounts was driven by the growth in institutional agency accounts and individual agency accounts by P82.9 billion and P52.2 billion, respectively,” the report said. These accounts are characterized by a trust institution with no legal title to an asset binding itself to render asset management services in representation or on behalf of a client who is expected give his or her consent.

Meanwhile, the report noted that trust accounts had the largest share to total accountabilities at 54.6% or P1.706 trillion. This account refers to one in which the legal title to funds and/or properties of trustor is transferred to the trustee, subject to the latter’s obligation to administer, hold and manage such funds and/or properties for the use, benefit or advantage of the trustor.

“Unit investment trust funds (UITFs) held 47.6% of the total trust accounts followed by personal trust and employee benefit with 22.5% and 19.8% shares, respectively,” the report said. UITFs experienced a 7.1% jump to P828 billion, a reflection, the report remarked, of the industry’s innovativeness when it comes to offering UTIFs with features that satisfy varying investor appetites.

“Trust accountabilities were mostly in the form of Money Market UITFs indicating investors’ preference for short-term securities,” the report said. Money market fund accounted for 73.8% or P611.1 billion of the total UITFs. It was followed by equity fund (10.7% or P88.8 billion), bond fund (6.6% or P54.7 billion) and balanced fund (2.5% or P20.6 billion).

The industry had a profitable first semester, netting P2.8 billion. “Fees and commissions, which are the main sources of income of the industry, was maintained at P4.7 billion. Meanwhile, taxes and licenses, administrative and other expenses which comprised almost 55.0% of total expenses, increased year on year by 63.8%,” the report said. The total income of the industry constituted 3.4% of the total net income of the entire banking industry.

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