BDO and BPI to be hit the hardest by policy reform in reserves on trust

Foregone trust income could range from a low of PHP20m to as high as PHP440m.

According to Maybank Kim Eng, the Bangko Sentral ng Pilipinas (BSP) is reportedly studying policy reform in reserve requirement (RR), specifically for trust products.

The RR currently covers only bank deposits and deposit substitutes and is set at 18%. The reform is to counter any additional inflationary pressures from excess liquidity as positive market sentiment continues to drive strong capital inflows.

Here's more from Maybank Kim Eng:

Based on latest BSP data, total trust assets under management is about PHP3.14t, up 14.7% YoY. If the BSP were to apply an 18% reserve requirement on all trust products, this could siphon off an estimated PHP565b from the financial system.

Negligible impact on earnings. If implemented, the RR adjustment could post higher intermediation costs for trust companies and banks. Trust account of banks under our coverage as of end-December 2012 accounts for 75% of total trust funds.

Using an average 30-bp yield on trust accounts, we calculate the potential foregone trust income could range from a low of PHP20m to as high as PHP440m. Notably, BDO Unibank, Inc (BDO) and Bank of the Philippine Islands (BPI) would be hardest hit given their substantial AUM. However, earnings impact would be negligible, ranging from less than 1% to 3%.

Other regulatory adjustments in the offing. We believe the policy rate, which was kept steady at 3.5% in the recent monetary board meeting, will be maintained in the coming months while other measures will be undertaken to temper capital inflows.

The BSP also hinted possible macro-prudential measure in the property sector following expanded reportorial requirement from banks starting January this year.

Nevertheless, we estimate bank loans to expand at an average of 16% this year, at par with last year’s growth. Among financial stocks, we maintain our preference for shares of Metrobank (MBT) given its reasonable valuation relative to prospective earning