Senators wary FIST to leave gov't saddled with bank debts
MANILA, Philippines — Senators have questioned government plans to absorb bad bank debts expected to pile up due to the pandemic over fears taxpayers would get the losing end if soured loans are not quickly disposed.
The plan is contained under Senate Bills 1594 and 1596 proposing the establishment of Financial Institutions Strategic Transfer (FIST) companies, which will be tasked to buy out unpaid loans from lenders at a discount and then working to have these paid or restructured.
“Why is it that in this bill we are considering government to get involved in purchasing non-performing loans? Why not let the market operate? Why not let the private sector undertake the necessary risks?” Senate President Pro Tempore Ralph Recto told the Senate banks, financial institutions and currencies committee on Wednesday.
“Why subject the government to any of these potential risks?” he said in the online hearing.
Under the proposals, government financial institutions such as Land Bank of the Philippines and Development Bank of the Philippines (DBP), like their private counterparts, would be allowed to run FIST corporations, which in effect, expose them to bad assets which can either be disposed or rot in their balance sheets.
This matters as Senate Minority Leader Franklin Drilon asked who is going to pay for the capital to cover these losses. Going ahead of the point, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said no taxpayer’s money would be spent. “I don’t see any need for annual appropriation here,” he said.
The provision on state participation on FIST is supposedly an "improvement" from Republic Act 9182 or the Special Purpose Vehicle Act of 2002, over which FIST was patterned. At the time, the now-expired law regulated the same asset transfers after the Asian financial crisis left banks saddled with unpaid dues that prevented lending to consumers and businesses.
In response, Cezar Consing, president of the Bankers Association of the Philippines, an industry group, said government should be given a chance to earn returns from selling bad assets. Drilon, however, was not taking any chances.
“I disagree, just for the record, I do not think the government should be making reasonable returns or profit from this…I could not understand why the government should be allowed to participate in the system,” Drilon said.
“(The) question in my mind is where would you get the capital when we appropriate money. And as a matter of principle, government should not interfere, should not participate, in commercial transactions as contemplated in the FIST,” he said.
Senator Grace Poe, committee chair, then turned to the commercial banks to ask whether without LandBank and DBP establishing FIST firms, lenders have sufficient capital to put up their own and absorb potential losses. Consing, also president of Bank of the Philippine Islands, was unsure. “It’s very hard to tell," Consing said.
“I do know that the quantum that we are talking about now are very different from 20 years ago. We are now talking of potentially trillions of pesos more in assets,” he said.
As per BSP’s survey of banks, non-performing loans are seen to rise to 4.6% of total bank credit by yearend, up from 2.5% as of June. NPLs are unpaid loans 30 days from the due date. Higher bad debts are likely to slightly erode capital adequacy ratio to 14.8%.
FIST is one of the Duterte administration’s preferred modes of stimulus, together with the Bayanihan to Recover As One, now just awaiting President Rodrigo Duterte’s signature, the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery bill, and the proposed P4.5-trillion 2021 budget.
The bill already hurdled the House of Representatives and is currently at the committee level in the Senate. At the end of the hearing on Wednesday, Poe ordered a technical working group to be established to come up with the bill’s committee version, considering inputs from hearings.
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