FIVE asset management companies have been set up since the enactment of the law almost a year ago allowing the creation of these entities to enable banks and other credit-granting institutions to offload bad loans and non-performing assets they have accumulated during the pandemic.
The Securities and Exchange Commission (SEC) said two of these five Financial Institutions Strategic Transfer Corporations (FISTCs) are 100-percent Filipino-owned while the rest have Japanese and Swiss investors.
In a report to Finance Secretary Carlos G. Dominguez III, the SEC said both the Philippine Equitable Recovery FIST-Asset Management Corporation (AMC) and Philippine Recovery Company FISTC- AMC Inc. are 100-percent Filipino-owned.
Meanwhile, those with foreign investors are: Argo Global Servicing Philippines (FIST-AMC) Inc., owned by Argo Global Investment Co., LTD, a Japanese corporation; Resurgent Capital (FISTC-AMC) Inc. which has China Bank Capital Corp., a domestically registered investment banking subsidiary of China Banking Corporation, among the incorporators; and Collectius FISTC-AMC Private Limited Corp., which is wholly owned by Switzerland-based Collectius 2 AG.
To cushion the impact of the pandemic on the financial sector, President Duterte signed the FIST law in February last year to allow banks and other financial institutions to offload nonperforming assets (NPAs) by selling them to asset management firms, to be known as FISTCs, so they could lend more to pandemic-hit businesses.
To encourage FISTCs to acquire the financial institutions’ soured loans and NPAs, the new law provides for tax exemptions and lower fees on certain FIST-related transactions.
Under the FIST law and its implementing rules and regulations, the SEC should approve the establishment of FISTCs and the reconfirmation of existing special purpose vehicles (SPVs) as FISTCs.
According to the law, a FISTC is a stock corporation that shall have a minimum authorized capital stock of P500 million, a minimum subscribed capital of P125 million, a minimum paid-up capital of P31.25 million. However, a FISTC cannot be a one-person corporation.
Where land and foreign equity participation are concerned, a FISTC shall comply with the provisions of the Constitution and the minimum capital requirements under the Foreign Investments Act.
Apart from approving the establishment of FISTCs, SEC is also tasked to monitor their operations as well as review and approve the issuance of their Investment Unit Instruments (IUIs). These IUIs refer to participation certificates, debt instruments, or similar instruments issued by the FISTC and subscribed by qualified investors.
According to the Department of Finance (DOF), the SEC also said in informal discussions with the banking sector that it found the slow rollout of the FISTCs was attributable to the continued strength of the Philippine banking system amid the pandemic.
The SEC estimates the current non-performing loan (NPL) ratio for Philippine banks at 4.43 percent as of November 12, 2021, which is less than double the prepandemic NPL levels and much less than the ratio during the Asian financial crisis.
“Unlike during the Asian [financial] crisis, in general, Philippine banks remain well-capitalized and liquid. Hence, there is less pressure for banks to liquidate NPLs or NPAs for cash,” the SEC said.
Moreover, the SEC said foreign investors need not go far from their home jurisdictions to invest in distressed debt given that the Covid-19 pandemic is global in scope, unlike the Asian financial crisis, when most of the proponents of the SPVs were foreign funds that were interested in opportunities to invest in distressed Asian debt, including the NPLs/NPAs of Philippine banks.
Instead of focusing on banks, the SEC said the FISTCs may need to turn their attention to other Philippine credit-granting institutions, such as financing, lending, and microfinance companies. The SEC said it plans to discuss this concern with the Investment Houses Association of the Philippines (IHAP) and the Philippine Finance Association (PFA).