THE Senate Committee on Banks and Financial Intermediaries on Monday approved the measure that will allow financial institutions to offload bad loans to asset management companies.
The passage of Senate Bill No. 1849, the “Financial Institutions Strategic Transfer (FIST) Act,” is being pushed in anticipation of an increase in nonperforming assets (NPA) that are projected to reach P635 billion by the end of the year, as a result of the coronavirus disease 2019 (COVID-19) pandemic.
“Of this number, the banking sector assumes that up to 40% could be sold to FIST corporations. A more moderate estimate pegs it to 25% or P159 billion,” Senator Grace S. Poe-Llamanzares said during her sponsorship speech, Monday.
“Further, P40 billion could be recovered by FIST corporations. Ultimately, BAP (Bankers Association of the Philippines) estimates that it could free up to P278 billion in total capital. Multiply this with the average leverage ratio of 4.3 times and the total loan release could amount to P1.19 trillion.”
Under the bill, FIST corporations will be allowed to invest in or acquire NPAs or engage third parties for its management, operation, collection and disposal, among others.
The bill states that one-person corporations and government financial institutions (GFI) will not be allowed to set up FIST corporations.
The FIST bill is one of the COVID-19 response measures of the government, specific to financial institutions, along with the GFI Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bills.
The measure is an improved version of the Special Purpose Vehicle Act of 2002, Republic Act No. 9182, enacted in the wake of the Asian financial crisis. It now covers lending companies and credit-granting companies that are licensed by the central bank.
The bill also exempts the transfers of NPAs from documentary stamp tax, capital gains, value-added tax and creditable withholding income tax among others.
Ms. Poe-Llamanzares said the swift enactment of the FIST Act will promote investor and depositor confidence, as well as mitigate the effects of the coronavirus crisis.
“We also see this strategy being employed elsewhere in the world. South Korea, Ireland, and China have all been using their existing asset management corporations to acquire bad debts caused by the COVID-19 pandemic. Others like Greece, Malaysia and the European Union are also exploring setting up their own versions…. We should set up a system for offloading bad debts earlier than the others,” she said. — Charmaine A. Tadalan