Tagging distressed assets for 3rd-party sale allowed till 2021

The Bangko Sentral ng Pilipinas complex (right), seen from Manila Bay in Pasay City.

EXPECTING a further increase in nonperforming assets (NPAs), the Bangko Sentral ng Pilipinas (BSP) said that recognizing distressed assets qualified for third-party sale may be allowed until next year under the proposed Financial Institutions Strategic Transfer (FIST) Act.

BSP Governor Benjamin E. Diokno said in a Senate hearing on Wednesday that the current applicability clause of the bill includes NPAs as of end-December 2020, but he clarified that the coverage period may be extended until next year.

“The FIST bill covers assets that have become nonperforming as of 31 December 2020,” Diokno said. “This can be considered to be moved to second quarter of 2021 in view of the impact of the Bayanihan II.”

NPAs refers to nonperforming loans (NPLs) and real and other properties acquired in settlement of loans.

The FIST bill allows financial institutions to get rid of their NPAs by selling them to asset management firms or FIST companies. That way, they can attain better management of their debt levels during this pandemic.

Diokno stressed that the enactment of the bill can ease the pandemic-induced stress on the banking system, noting that financial institutions would not have to incur expenses to manage their NPAs. This responsibility falls on the asset management companies already after the sale.

Unloading the NPAs to the FIST companies can also help boost liquidity because they “will no longer be tied up in NPAs,” Diokno said.

Free up capital

The BSP chief explained that this can also help free up the banking industry’s capital, strengthening its risk-bearing capacity. At the same time, he added, it can also support investment and lending activities.

“BSP supports the laudable objectives of FIST Bill to induce economic activity and improve the liquidity of the financial system, enabling FIs [financial institutions] to respond to the looming increase in NPAs, and therefore, propel economic growth,” Diokno said.

“The enactment of the FIST law will assist the financial system perform its role of efficiently mobilizing savings and investments for the country’s economic recovery, as well as its sustained growth and development,” he added.

Early introduction

The Bankers Association of the Philippines (BAP), meanwhile, welcomed the early discussion of the bill because this could prevent the banking industry from spiraling down.

BAP President Cezar P. Consing, in the same hearing, recalled that a related law—Special Purpose Vehicle (SPV) Act of 2002—was only introduced later on during the Asian financial crisis when NPLs had already reached beyond 18 percent in 2001.

“The banks did not realize how bad this could be….  The banks were a little too naive, a little too slow,” he said.

If it was enacted earlier, the situation could have been mitigated, Consing explained. He said that NPL levels only showed signs of recovery in 2005, dropping to 4.9 percent.

As of end-June, the banking industry’s NPL level stood at 2.53.

Consing said the FIST bill could be deemed successful if 30 percent to 40 percent of NPAs will be sold to asset management companies. “If we ended up doing 30 to 40 percent of the NPAs via the FIST, that would be a good result,” he said.

Under the SPV law in 2002, around 28 percent of NPAs were transferred to SPV entities.

Image credits: Arden Paolo Alberto | Dreamstime.com


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