MANILA, Philippines — Senators on Tuesday passed one of President Rodrigo Duterte’s preferred stimulus measures which establishes an avenue for banks and other financial institutions to offload their bad assets so that they can lend to consumers battered by pandemic.
Voting 18-0, with no abstentions, the upper chamber passed Senate Bill 1849 or the Financial Institutions Strategic Transfer Act (FIST) bill. The same-day passage on second and third readings was made possible by Duterte who certified the bill as urgent.
The measure will now go to the bicameral conference committee composed of select House and Senate members where it would be consolidated with the Lower House version, before getting transmitted to Duterte’s desk for signature.
FIST’s approval had been supported both by Duterte administration and the central bank, which feared record-high joblessness would prompt borrowers to default in their loans, burdening lenders and directly circumventing their ability to lend to businesses and consumers so they can drive economic activity.
While that is yet to happen, thanks highly to regulatory reliefs that gave grace periods to loan payments, the slow unwinding of this reprieve that already started in September is seen as trigger for non-performing loans (NPL) to surge. As of August, NPL, or bank credit unpaid at least 30 days past due date, stood at 2.8% of total loan books but lenders see the rate up to 4.6% by yearend.
Under the proposed measure, FIST corporations will be tasked to absorb and collect unpaid dues for banks, insurance firms and other financial companies. If collection fails, FIST firms could then sell and clear up the bad debts. In this way, lenders get to save capital that otherwise would go to cover potential losses.
FIST is patterned over Republic Act No. 9812 or the Special Purpose Vehicle Act used to shield lenders from the damage left by the Asian financial crisis of 1997.
Amendments
During Tuesday’s plenary, Senate Minority Leader Franklin Drilon tried to tighten the screws for regulators by removing from the original proposal the power of the Securities and Exchange Commission (SEC) to freely determine which company can be organized as FIST corporation.
Instead, Drilon suggested that FIST companies be governed by capitalization requirements namely at least P500 million in capital stock, a minimum subscription capital of P125 billion, and paid-up capital no less than P31.5 million. The amendments were approved.
In addition, Drilon also put a cap on credit that FIST firms may acquire. Under the measure, only loans with principal amount and interest “unpaid for at least 180 days after they have become past due” or succeeding defaults governed by periods under specific loan agreements would be covered.
“We do not believe that we should leave this issue to the rules and regulations as proposed by the central bank,” Drilon said, to which Senator Grace Poe, the measure’s sponsor, replied: “I accept…I know our dismay and disappointment on how IRRs (implementing rules and regulations) are crafted with wide latitude given to the agencies.”
Senator Imee Marcos, on the other hand, wanted to exempt FIST firms from the Data Privacy Act, which means banks selling their bad assets to FIST companies may share personal information to the latter supposedly “to broaden" and cover "as many NPLs as possible.”
Poe accepted the amendments, but subject to changes in wording to ensure that only pertinent client information would be required.
With FIST’s passage, Senate is now left with the proposed P4.5-trillion 2021 budget as well as the highly contentious Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bills to act on to complete the key measures that economic managers said are critical to recovery from the health crisis.
Senate President Vicente Sotto earlier did not promise passing CREATE this year, although he vowed legislators will exert their “best effort.”