THE Senate Committee on Economic Affairs, in a bid to help government raise more funds and keep businesses afloat amid the Covid-19 pandemic, is poised to frontload for plenary consideration a remedial legislation enabling state-run and private financial institutions to sell “toxic” nonperforming assets (NPAs) more easily.
Sen. Imee Marcos, who chairs the committee, affirmed the need to “create specialized asset-managing corporations that will clean up the balance sheets of lending institutions by acquiring their bad loans and stagnant properties.”
In filing Senate Bill 1646 to be known as the Financial Institutions Strategic Transfer (FIST) Act, Marcos noted that “unpaid loans and other nonperforming assets are the virus infecting the country’s financial system and will test its resilience in the coming months.”
The senator warned that the pandemic is expected to make it harder for borrowers to pay back and will likely increase the bulk of nonperforming assets in government financial institutions, private banks, investment houses, and other credit-granting entities.
Moreover, Marcos added that similar to the special purpose vehicles (SPVs) created in the wake of the 1997 Asian financial crisis, the FIST corporations proposed in her bill will specifically address the Covid-19 pandemic’s threat to the economy.
She recalled that “the financial relief strategy back then was able to lower the ratio of bad loans to total loans from 14.6 percent in 2001 to 5.1 percent in 2005. Liquidity was created in the hundreds of billions.”
At the same time, Marcos maintained that greater liquidity means banks and other financial institutions will be able to lend more to keep businesses in operation.
The senator added: “Also, we need more than the P140 billion that our economic managers have allotted for the government’s second stimulus package. Creating FIST corporations will help government raise revenue to respond to the pandemic.”
In a statement, Marcos maintained that tax privileges and fee exemptions to be given to FIST corporations aim to encourage their creation at a time of increased financial risk.
She noted that among banks alone, the amount of nonperforming loans may increase in the coming months from the present 5 percent to as high as 20 percent of total loans, as projected by the Bankers Association of the Philippines. “Let us not be complacent and plan for the months ahead. While the government has so far managed to keep the peso steady against the dollar with a strong balance of payments and international reserves, how long will this last if local businesses and exports remain weak?” the senator wondered.
Marcos added: “The spike in Covid-19 cases is shocking us each day and our hospitals are starting to fret about their capacities,” noting that UP researchers have just revised their case projection upward from 60,000 to 75,000 by the end of July.