Two Notes, One Song
(Article Published in the Oct 17,2012 issue of Manila Standard Today)
They gave their keynote addresses on different days and, by force majeure, even at different times of their respective speaking days. But they both sang the same tune and made the same pitch. At the Philippine Trust Industry’s Summit, held at the Hotel Intercontinental at the City of Makati, last week, on October 4 and 5, both the lion regulator Bangko Sentral ng Pilipinas and the lamb industry regulated Bankers Association of the Philippines, grazed in the landscape of the immediate future.
Dubbed as “Beyond SDA: The Search for the Next Trust Engine of Growth”, the trust industry’s Summit—a first in the history of the trust banking in the Philippines—was a concerted attempt on the part of the major stakeholders to see what lies ahead in the immediate future, i.e. within the next five years, for the ubiquitous Unitized Investment Trust Fund (UITF) and other collective schemes, the pesky Trust and Other Fiduciary Accounts-Investment Management Accounts (TOFA-IMA) regulations and the emerging Private Banking Sector. What, the Summit participants coming from both the people on top and the people on the ground ask, must the trust industry do in order to cope up with the demanding times that lie ahead?
Keynote speaker for the first day, BSP Deputy Governor Nestor A. Espenilla, Jr., began by pointing out how different the Summit was from previous exercises of the industry. “Instead of just raising one relevant issue after another, the industry,” he noted, “is now taking on the cudgels of helping define a roadmap for the next 5 years.” That effort, he maintained, “is most laudable and we [the regulators] welcome it.” He assured the participants that “we join this Summit with an open mind.”
Nesting immediately dove into a very critical feature of our time, namely, change. Though change is permanently with us, as noted even much earlier by the Greek philosopher Heraclitus, he pointed out that “today’s global environment reminds us more than ever that finance is still about balancing risks and rewards. Large returns cannot be an absolute success if large—and continuing—risk exposures had to be taken. Lower risks cannot be also be beneficial if by doing so we forego accruing gains.” This the trust industry, like others in finance, ought to be an expert on.
But the trust industry’s approach to balancing risks and rewards ought to be different from those of others in the financial markets; its posture is the “detached objectivity of a 3rd party whose first and foremost duty is to care about his client’s needs and not his own bottom line.” In recognition of this qualitative difference, the stance of the enlightened regulator, like the BSP, is to “take every opportunity to reiterate the value of market conduct and overall governance.” The regulator’s role is to make sure that the trust industry not only defines its visions and standards correctly; but, perhaps more important, executes its mission properly.
This regulator’s stance is called for by the phenomenal growth of the trust industry over the recent past: “Trust accountabilities totalled Php 1.23 billion as of December 2008. By year end 2011, this has grown to Php.3.10 trillion.” Indeed, “trust acitivity is a key market for the banking public, outpacing the mainstream avenues for financial mobilization.” This growth is obviously a tiger that could benefit from some taming.
Certainly, the object of the taming is not to dwarf the tiger; but rather, to put it in the service of its clients, a mission the trust industry had always borne. But today, Nesting maintains, the pursuit of the development of the clients’ interest “must be more holistic, increasing both awareness and capacity to operate in a market which is itself getting more complex.”
The industry’s growth must be a principled growth. “We need to have a clearer understanding” said Espenilla, of for whom such growth is accruing.” “Otherwise,” he warned, “we run the danger of targeting a limited client base with products that may be well suited only for today’s market situation” and expose the industry to the spectre of losing that base “when the usual trust banking client exercises his vote through his wallet should market conditions reverse.” At the end of the day, the real client of the trust industry is the people, the country itself as a whole.
For the second day, the keynote address was delivered by Security Bank’s President, Alberto Villarosa in his capacity as President of the Bankers Association of the Philippines. He too reminded the participants of the need to leverage on the trust industry’s current strengths in order to sustain its growth and capture new markets. He issued three challenges.
First, he called on the trust industry to increase both the depth and breadth of private sector bond market. The steps taken by the government to broaden its market, through the upcoming unification of tax exempt and tax paying markets, continuous switch programs, repo markets, etc. need to be replicated, said Abet, by the corporate bond market. The trust industry’s placement power and distribution capabilities, said the BAP president, can be brought to bear on that task even as certain issues continue to be still in the process of being resolved by the proper authorities.
The second challenge posed by Villarosa is the need for the trust industry to help develop a “robust private banking and wealth management structure” in the economy. With the emergence of the class of high net worth individuals looking for sophisticated portfolio managers, the trust industry, said Abet, needs “to wean off from single-product plain vanilla solutions and begin the ardous task of looking their scope to be truly fund managers, catering to the needs of an evolving client base.”
Finally, his third challenge was for the prudential use of derivatives in trust transactions. Certainly conscious of the bad press suffered by derivatives in the recent past, Villarosa nevertheless recognized the role they can play in mitigating and managing market risks. Derivatives work on leverage and leverage is a two-bladed tool that needs to be prudently handled. “Proper supervision, market education and prudential risk management are critical...” said Villarosa.
Apparent in Villarosa’s recitation of challenges is the thread that binds them all together, namely, the trust industry’s obligation is to discern what the country’s needs and to supply, within the parameters of its charism, the requirements of those needs. He situated the trust industry in the context of the bigger picture of Philippine banking as a whole. He ended his keynote address with a reiteration of the association’s support of the trust industry. “We in the BAP...,” he said, “will continue to support not only the development of the capital markets but the further development of the Trust/Funds Management and Fiduciary business and industry. You have our unequivocal commitment.”