THE House of Representatives on Thursday approved on second reading the Financial Institutions Strategic Transfer (FIST) bill to help banks and other financial institutions from the impact of the Covid-19.
House Committee on Banks and Financial Intermediaries Chairman Rep. Junie Cua said House Bill 6816 aims to help financial institutions in their bad debt resolution and management of their nonperforming assets (NPAs) in order to cushion the adverse impact of the pandemic on their financial operations.
To date, as a result of the pandemic and disruption of economic activities, Cua said, most financial institutions are facing a period of delayed loan collections and are at risk of recording higher NPAs across all borrower segments.
NPAs consist of financial institutions’ nonperforming loans (NPLs) and real and other properties acquired (ROPAS) in settlement of loans and receivables.
According to Cua, NPAs prevent banks and financial institutions from effectively performing their crucial role of financial intermediation.
The bill encourages financial institutions to sell NPAs to asset management companies, created as Financial Institutions Strategic Transfer Corporations (FISTC), that specialize in the resolution of distressed assets.
Also, the measure encourages the private sector, government financial institutions, and government-owned or-controlled corporations to incorporate and invest in FISTCs and help in the rehabilitation of distressed businesses with the end view of contributing to economic growth.
The bill said application for the establishment and registration of an FISCT shall be filed with the Securities and Exchange Commission not beyond 18 months beginning from the date of affectivity of this proposal or its implementing rules and regulations.
The measure also extends support to financial institutions, as well as FISTCs, in disposing of their NPAs by granting tax exemptions and reduced registration and transfer fees on certain transactions involving NPAs.
Under the bill, the transfer of NPAs from the financial institution to an FISTC shall be exempt from following taxes: documentary stamp tax; capital gains tax; creditable withholding income taxes imposed on the transfer of land/or buildings and value-added tax on the transfer of NPAs.
However, the measure provides that transfers shall be subject to the following, in lieu of the applicable fees:
a) 50 percent of the applicable registration and transfer fees on the transfer of real-estate mortgage and security interest to and from the FISCT, as imposed in accordance with the existing circulars of the Land Registration Authority (LRA);
(b) 50 percent of the filing fees for any foreclosure initiated by the FISTC in relation to any NPA acquired from an FI, as prescribed by the Rules of Court; and
(c) 50 percent of the land registration fees prescribed under the existing circulars of the LRA.
The bill said transfers from an FISTC to a third party of NPAs acquired by the FISTC within such two-year period, or within such extended period, or transfers by way of donation in payment by a borrower to the FISTC shall enjoy the privileges enumerated herein for a period of not more than five years from the date of acquisition by the FISTC. Provided, that the secretary of finance may extend such five-year period by a maximum number of years: Provided, further, that properties acquired by an FISTC from GFIS or GOCCs which are devoted to socialized or low-cost housing shall not be converted to other uses.
Also, the bill provides additional tax exemptions and fee privileges to encourage the infusion of capital and/or financial assistance by the FISTC for the purpose of rehabilitating the borrower’s business.
It said the following additional tax exemptions and privileges shall be enjoyed: The FISTC shall be exempt from income tax on net interest income, documentary stamp tax and mortgage registration fees on new loans in excess of existing loans extended to borrowers with NPLs which have been acquired by the FISTC and in case of capital infusion by the FISTC to the borrower with NPLs, the FISTC shall also be exempt from the documentary stamp tax.
The bill said that the above-mentioned tax exemptions and fee privileges shall apply for a period of not more than five years from the date of acquisition of NPLS by the FISTC. Provided, further, that the secretary of finance may extend the period by a maximum of five years.