‘Economic benefits of FIST outweigh fiscal costs’

MANILA, Philippines — Despite the expected billions of pesos in foregone revenues for the government, Finance Secretary Carlos Dominguez still supports the proposed Financial Institutions Strategic Transfer Act (FIST), saying the economic benefits of   strengthening the financial sector through the measure outweigh the fiscal costs.

During the joint virtual hearing of the Senate Committees on Banks, Financial institutions, and Currencies, and   Ways and Means, Dominguez said   the tax exemption provisions of the FIST would result in foregone revenues of P3.3 billion to P13 billion every year for the next five years.

According to Dominguez, the government is willing to forgo as much as P58.49 billion in revenues in the next five years under the proposed measure.

From 2021 to 2025, foregone revenues are projected to hit from P14.62 billion to P58.49 billion.

“We believe that the economic benefits of strengthening the financial sector through this effort outweigh the fiscal costs of doing so. We are willing to forgo revenues from P3.3 billion – or if all avail of the tax benefits – to P13 billion pesos every year for the next five years to clear the banks’ books and keep the economy going,” the finance chief said.

Under the proposed measure, banks will be allowed to outsource the management of their non-performing assets to asset management companies, enabling  them to focus on their task to lend to sectors that are in need of credit.

The bill also allows limited foreign participation, while financial institutions unloading non-performing assets must not own more than 10 percent or have direct or indirect control of the concerned FIST firm.

The measure also requires FIST companies to set up consumer protection mechanisms, and mandates that concerned parties to undertake due diligence in their transactions.

“By keeping non-performing assets contained and managed, FIST will expand the amount of risk banks can take. This benefit cannot be understated in a crisis, when lending to businesses is riskier but also more urgently needed,” Dominguez said.

The proposal also provides tax incentives to cover the transaction and transfer costs of non-performing assets to asset management companies.

Dominguez said the swift passage of the bill would preserve the asset quality of banks, ensuring the continued strength of the financial sector and providing the much needed boost to help the economy recover from the damage inflicted by the pandemic.

The finance chief said the bill would protect the financial sector from any lasting damage by guaranteeing a steady source of credit for pandemic-hit sectors, while providing safeguards to consumers.

“Enacting FIST will fortify the financial sector and keep it strong and stable for the difficult task of rebuilding our economy,” Dominguez said.

He described the FIST bill as an improved version of the Special Purpose Vehicle (SPV) Act of 2002, which was passed by Congress to stem the damage caused by the 1997 Asian financial crisis. – Paolo Romero