BSP to exempt some trust accounts from bank reserves

By Melissa Luz T. Lopez, Senior Reporter

THE central bank will soon exempt certain trust accounts from bank reserves, a senior official said, which refer to special-use funds kept as deposits from companies.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said the Monetary Board has approved the removal of institutional trust accounts from the computation of required reserves (RR) maintained by banks.

“On the trust accounts, for special institutions with trust accounts with a very defined purpose, the BSP is already exempting them from the reserve requirement. This is upon the effectivity of the circular which would still be published,” Ms. Fonacier said.

Asked for more details, the central bank official said the easing of rules covers Specialized Institutional Accounts under Trust (SIT).

This includes arrangements created by institutions, foundations, agencies from both government and private sector players which are “primarily for charitable, religious, educational, athletic, scientific, medical, cultural, specialized lending or developmental projects,” according to existing BSP rules.

Ms. Fonacier added the reform was made following a request made by the industry.

Since June, universal and commercial banks are only required to keep 18% of deposits intact from 20% previously. The two cuts in the reserve requirement ratio have freed up a total of about P200 billion for increased lending and bank investments.

“SIT may be granted exemption from RR as these accounts were established for a defined and specific purpose and determinable beneficiaries. Imposing RRs on these accounts hinders the main purpose for their establishments,” Ms. Fonacier said.

However, she noted that the new rule will have a “minimal impact” in bank liquidity.

BSP Governor Nestor A. Espenilla, Jr. has said that the central bank will hold off further reserve cuts until next year, only until inflation eases back to the 2-4% target in 2019.

Inflation is currently at nine-year highs at 6.7% in September and October, which brought the year-to-date average to 5.1%.

Still, Mr. Espenilla said that they will keep on with a gradual reduction in deposit reserves to eventually reach single-digit levels, in order to reduce borrowing costs and make the local banking system more competitive to regional peers.

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