Prepare for expansion of capital mart, Camacho tells trust sector

Government warned the trust industry against being caught unprepared when the capital market starts to expand as a result of various legislative measures intended to accelerate the development of alternative sources of long-term funding.

Speaking before the Trust Officers Association of the Philippines, Finance Secretary Jose Isidro Camacho said the industry would play a critical role in developing the capital market since they manage the bulk of the country’s long-term funds.

In the last 10 years, Camacho said the volume of trust business had grown from about P90 billion in the early 1990s to over P500 billion. "This growth in performance over challenging times attests to the industry’s capacity to make the best of the opportunities to the industry," he said.

However, Camacho said the industry is on the verge of massive reforms that would allow it to explore depths that had not been accessible simply because the regulatory regime did not contemplate them in the past.

The introduction of various legislative frameworks, Camacho said, would likewise introduce new opportunities that the industry should be prepared for. "This capacity to generate long-term funds is critical in the context of efforts to sustain the country’s growth," he said.

"Our domestic capital market is shallow, illiquid and short-term oriented," Camacho said. Long-term projects are financed by short-term funds, much of them through bank-financed loans.

"If there is one lesson we should have learned from the 1997 Asian financial crisis, it is the need for countries in the region to rely less on short-term bank needs and to develop alternative sources of long-term funding through domestic capital market development," he said.

Camacho pointed out that the government is struggling to accelerate the development of the capital market but industry players such as the trust industry will have to be prepared for the impending changes.

Camacho said the industry should be prepared for the enactment of the Securitization Act of 2002 which will provide the regulatory and tax framework governing the issuance and sale of asset-backed securities as well as the establishment of special purpose asset vehicles for the sole purpose of securitization.

"With the passage of this law, the trust industry could expect an upsurge in securitization and increased opportunities for the industry to serve as trustees in such deals," he said.

Likewise, Camacho said the SPAV law would also have an impact on the trust industry since it would allow SPAVs to invest up to 10 percent of their investible funds for liquidity purposes in eligible assets such as Treasury bills and trust participation certificates.

Amidst all the changes that various new laws would introduce, Camacho said the trust industry would have a critical role particularly in the voluntary retirement fund segment.

"First is leadership in product innovation since there is a market for new, small savers whose needs the industry could cater to," he said. "Second is the challenge of investor education which would allow the industry to get immediate rewards by tapping an unsophisticated market that thrives on simplicity.