BSP issues circular revolutionizing trust industry

BSP issues circular revolutionizing trust industry
by Roderick T. dela Cruz

Bangko Sentral made public Sunday a directive that is expected to revolutionize the trust industry, by separating trust corporations from banking operations.

The circular, signed by Bangko Sentral Governor Amando Tetangco Jr. on Jan. 19, allows banks and non-bank financial institutions to establish trust corporation as separate entity with a minimum paid-in capital of at least P300 million.

A trust company is an organization that acts as trustee, fiduciary or agent that manages financial assets of other people such as stocks, investments in government securities, bank deposits and highly liquid and investment grade securities, loans and other credit accommodations, real estate properties and other assets. It also acts as financial consultant, investment adviser or portfolio manager.

The circular states that a trust corporation may be a separate subsidiary or an affiliate of a bank or a non-bank financial institution as long as the investing bank or the non-bank financial institution will no longer engage in trust business through any of its department.

The circular limits banks and non-bank financial institutions to acquire or invest in the equity of not more than two trust corporations.

Universal banks can acquire up to 100 percent of the total subscribed capital stock of a single trust corporation, but commercial banks are limited to only 49 percent. Thrift, rural or cooperative banks can invest up to 40 percent in a single trust corporation.

Universal and commercial banks cannot invest more than 25 percent of their total net worth in a single trust corporation. For aggregate limits, universal bank can invest only up to 50 percent of its net worth in a maximum of two trust corporations while commercial banks can only invest 35 percent.

Bangko Sentral requires trust corporations to pay a non-refundable license fee of P500,000 and an annual supervision fee of 1/32 of 1 percent of the average monthly balance of assets under management.

The company is required to maintain a minimum unimpaired combined capital account of P300 million, or any amount that may be prescribed by the Monetary Board in the future for assets under management up to P20 billion

For assets under management with more than P20 billion, a higher capital is required and computed as a percentage of the book value of the total volume of assets under management.

This means that on top of the P300 million, trust corporations must allocate additional amount representing 6 percent of its total assets in the range of P20 billion to P100 billion; 8 percent for P100 billion to P250 billion; 10 percent for P250 to P500 billion and 12 percent for more than P500 billion.

“For purposes of investing the allowable assets, the trust corporation shall not commingle their proprietary funds or assets with the assets under management, and invest the same in their own unit investment trust fund or other trust products,” Bangko Sentral said.

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