Last Year, Trust Companies' Assets Under Custody Grow 10%... 1000 Trillion Won Trust Market Approaching

[Asia Economy Reporter Koo Eun-mo] Last year, the trust assets under management by domestic trust companies increased by more than 10% compared to 2018, driven by the market's preference for safe assets. The total trust assets are also on the verge of entering the 1,000 trillion KRW range.

According to the "2019 Trust Business Status" announced by the Financial Supervisory Service on the 18th, as of the end of last year, the total trust assets of 60 domestic trust companies amounted to 968.6 trillion KRW, an increase of 10.9% (95.1 trillion KRW) compared to the end of the previous year (873.5 trillion KRW).

By sector, the trust assets of integrated trust companies (banks, securities, insurance companies) reached 738 trillion KRW, up 10.7% (71.3 trillion KRW) from 666.7 trillion KRW in 2018. Banks expanded mainly in specific money trusts (20.1 trillion KRW) and monetary claim trusts (14.8 trillion KRW), while securities companies grew centered on specific money trusts (27.7 trillion KRW).

Specialized trust companies, such as real estate trust companies, recorded 230.6 trillion KRW, growing by 23.8 trillion KRW (11.5%) compared to the previous year, supported by the expansion of collateral trusts (19.2 trillion KRW) and managed land trusts (5.9 trillion KRW). The market share by sector was 49.6% for banks, 24.5% for securities companies, 23.8% for real estate trust companies, and 2.1% for insurance companies.

By trust property, property trusts slightly outpaced monetary trusts in growth. Last year, property trusts amounted to 484.5 trillion KRW, an increase of 11.1% (48.4 trillion KRW) compared to the previous year, driven mainly by banks and securities companies' monetary claim trusts related to corporate asset securitization (14.5 trillion KRW) and banks and real estate trust companies' real estate collateral trusts (29.6 trillion KRW).

Monetary trusts also increased by 10.7% (46.6 trillion KRW) to 483.9 trillion KRW. Among specific money trusts, which account for the majority of trusts (467.3 trillion KRW), integrated trust companies led the expansion with retirement pension trusts (22.1 trillion KRW) and fixed deposit-type trusts (17.9 trillion KRW).

Trust fees also rose by 6.5% (1.414 billion KRW) to 2.3245 trillion KRW compared to 2.1831 trillion KRW in 2018. Banks' derivative securities-type trust fees increased by 96.7 billion KRW (18.4%), while securities companies' stock-type and retirement pension trust fees rose by 11.4 billion KRW (64.0%) and 8.4 billion KRW (20.7%), respectively, driving the fee growth. Real estate trust companies also contributed to the fee increase with collateral trust and land trust fees rising by 16.5 billion KRW (15.0%) and 6.1 billion KRW (1.0%), respectively.

Last year's growth in the trust industry is interpreted as a result of the expanded preference for safe assets. Investment demand in the asset market for high-risk financial investment products shrank due to issues that damaged market trust, such as the incomplete sales controversy of derivative-linked funds (DLF), and increased market uncertainty, leading to a rise in trust contracts focused on safe assets.

Banks saw a decrease in trust assets for derivative securities-type and stock-type trusts, while trust assets for safe assets such as demand deposit-type and fixed deposit-type trusts increased. Securities companies also experienced an increase in fixed deposit-type trusts, which are idle funds unable to find investment destinations amid growing stock market uncertainty.

The increase in retirement pensions is also noteworthy. Last year, retirement pension trust assets grew by 16.4% (22.1 trillion KRW) to 157.1 trillion KRW across banks, securities, and insurance companies. In particular, the assets under management for individual retirement pensions (IRP), which have tax advantages, increased significantly by 5.5 trillion KRW (31.6%) amid expectations of a prolonged low-interest-rate environment.

Managed land trusts also continued to expand their business scale. Managed land trust assets, which were around 48 trillion KRW at the end of 2017, grew to 56 trillion KRW by the end of 2018 and further expanded to about 62 trillion KRW by the end of last year. This is interpreted as a response to the real estate market downturn caused by the economic recession, increasing managed land trusts while restraining new orders for loan-type land trusts.

The supervisory authorities plan to strengthen monitoring of specific money trust products going forward. Since banks' sales of high-difficulty financial products through trusts have been restricted following the DLF incident, new financial products are expected to be incorporated to replace existing products.

The Financial Supervisory Service stated, "We plan to promptly respond to market changes by using the revised business report, which requires detailed descriptions of the characteristics of trust products, to monitor trust products with rapidly increasing sales in a short period and analyze their impact on investor protection."

Additionally, risk management for real estate trust companies will be strengthened. A Financial Supervisory Service official said, "We will regularly check the asset soundness of real estate trust companies and require additional provisions for under-reserved allowances to enhance the companies' loss absorption capacity. We will also frequently monitor the companies' liquidity risks to improve their liquidity response capabilities, focusing supervisory capabilities accordingly."

This content was produced with the assistance of AI translation services.