THE pending law on the strategic transfer of soured assets from banks to other asset management companies will eventually protect the country’s viability to become a bright investment destination in the post-coronavirus disease (Covid-19) world, the Bangko Sentral ng Pilipinas (BSP) chief said on Thursday.
Talking to reporters via an online conference, BSP Governor Benjamin Diokno expressed support for the program—currently dubbed the Financial Institutions Strategic Transfer (FIST) law—and said it will enable the local financial system to mobilize savings and investments for the country’s recovery post-pandemic.
Due to the global health crisis and the economic disruption it has caused, banks are bracing for the surge of nonperforming loans (NPLs), or more popularly known as “bad” or “soured” loans. These are loans that remain unpaid for more than 90 days after their due date.
The proposed program, the subject of pending legislation, aims to free up the banks’ finances by selling these nonperforming assets to asset management companies. The asset management companies, on the other hand, are given incentives such as tax exemption and reduced fees every time they try to resolve, rehabilitate or transact these nonperforming assets.
As of March 2020, Diokno said the banks’ ratio stood low at 2.2 percent, slightly higher than the 2.1 percent recorded last year. Their simulation, however, said it could reach up to 5 percent depending on the length and severity of the pandemic in the near future.
“The enactment of the FIST law will not only complement our regulatory and supervisory initiatives to mitigate the adverse effect of the Covid-19 pandemic but is also a necessary measure to assist the domestic financial system in the aftermath of this health crisis,” Diokno said.
“The passage of the law will promote investor and depositor confidence and will result in the efficient conduct of financial intermediation,” the governor further said, adding that the Philippines, prior to Covid-19, has been steadily rising to be a top investor pick, and measures such as these are crucial to reclaiming that spot once recovery mode in economies and the investing public fully kicks in.
BSP officials at the same online conference said this program is similar to other programs the Philippines has implemented in the past financial crises. The only difference is they want the law passed as early as possible to have a safety net for banks in expectation of the NPL surge.
Earlier this month, Finance Secretary Carlos Dominguez III also expressed support for the measure, but asked for more time for them to determine the impact of the measures’ fiscal incentives on their revenue collection.
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