Bpm removes reserves on 14 trust, fiduciary accounts

The Bangko Sentral ng Pilipinas (BSP) has issued the circular exempting 14 Trust and Other Fiduciary Account-Others (TOFA-Others) from the reserve requirement (RRs)

These accounts are subject to RRs of 16 percent, eight percent and four percent for universal banks/commercial banks, thrift banks and rural banks, respectively, which “affect the earnings potential of the account since these reserves cannot be used for investment,” according to the BSP.

Based on BSP Circular No. 1025, signed by BSP Governor Nestor A. Espenilla Jr. last December 13, the reserves against TOFA-Others has been removed, such as those of Specialized Institutional Accounts under Trust (SIT).

SIT is among the 14 TOFA-Others exempted, which also includes accounts held under Administratorship, Trust Under Indenture, Custodianship and Safekeeping, Depository and Reorganization, Employee Benefit Plans under Trust, and Escrow. Also exempted from reserves are Personal Trust (Testamentary Trust), Executorship, Guardianship, Life Insurance Trust, Preneed Plans (institutional/individual, Personal Equity and Retirement Account or PERA, and Legislated and Quasi-Judicial Trust.

The BSP said the SIT is included among the accounts that are exempt from the RRs as these would impact the accounts of foundations such as non-governmental organizations or NGOs.

“The inclusion of the SIT among the accounts exempted from RRs will benefit the accounts established by institutions, foundations, agencies, whether government or private registered with the Securities and Exchange Commission or the Cooperative Development Authority, primarily for charitable, religious, educational, athletic, scientific, medical, cultural, specialized lending or developmental project, or such other purposes of similar nature,” explained the BSP.

The BSP has reduced the RRs it charges banks by 200 basis points this year or from 20 percent to 18 percent.

Espenilla has said that he wants banks’ reserves ratio to come down to eight to nine percent by mid-2023. These RR reductions will free up funds that banks will no longer be required to reserve with the central bank.

Espenilla said cutting RR ratio from 20 percent to 18 percent this year is enough – and timely – and were efficiently absorbed by its auction-based open market facilities, therefore no liquidity impact. The 200 basis points off the RR level released P180 billion to P190 billion into the financial system.

The central bank earlier said that a single-digit RR is attainable “without sacrificing effective monetary control” and that the market should be “guided accordingly in developing their long term strategic plans.”

The two RR reductions in February and May have been applied to the reservable liabilities of all banks and non-bank financial institutions with quasi-banking functions.