BSP wants more NPAs entitled to perks under new SPVA

The Bangko Sentral ng Pilipinas (BSP) wants to qualify more non-performing assets (NPAs) for incentives under the amended Special Purpose Vehicles Act (SPVA) now pending for approval by Congress.

The BSP said yesterday that it was asking Congress not only to extend the effectivity of SPVA incentives but also to move the cut-off date for qualified NPAs in order to qualify newer NPAs for incentives.

Under the old provisions of the SPVA law, assets that became non-performing as of June 30, 2002 could be sold and qualified for incentives such as the deferred booking of losses arising from the discounted sale of these assets.

BSP Deputy Governor Nestor Espenilla told reporters that the incentives would be the same but there would be an adjustment in the cut-off date for qualified NPAs.

"The proposal is to move the cut-off date to Dec. 31, 2004," Espenilla said. "This means more NPAs would qualify for incentives if they are sold under the SPVA although we do not have an estimate yet on how much the coverage would expand."

Under the existing provisions of the SPVA, the incentives for all NPAs sold by banks and other financial institutions expired this April and the BSP wanted to extend these incentives for two more years to give banks more time to clean up their portfolio.

"There really isn’t much we can add to the incentive package outside of what we already provide, aside from outright subsidy which we can not afford to do anyway," Espenilla said.

According to Espenilla, the BSP has so far recorded around P90 billion worth of NPAs sold under the SPVA, including non-performing loans (NPLs) of banks.

"We are still processing some applications so the amount is likely to go a little over P90 billion but it will be below P100 billion," Espenilla said.

The BSP has already eased its implementing rules for the SPVA incentives and gave banks, among other things, longer time to book their losses when they sell their bad loans and bad assets to asset management companies.

To date, the universal and commercial banking industry alone had about P254.513 billion in non performing loans, accounting for over 15 percent of the industry’s total loan portfolio, a ratio that was way above the international norm of 10 percent and below.

Under the amended provisions of the IRR, banks now have 10 instead of only seven years to book the losses they would incur when they sell their NPL or NPA portfolio to interested special purpose vehicles (SPVs).

This way, Espenilla said, banks would not have to take a single big hit when they sell their bad loans at a discount. "Now they have 10 years to slowly book these losses so their financials won’t look too bad."

Espenilla said the deferred booking was effectively "back-loaded" so that the larger portion of the losses could be booked towards the end of the 10-year period.

Espenilla said the BSP also allowed banks the flexibility of freeing up the provisions for the bad loans to be used as provisioning for other bad loans that were not part of the sale.