BSP ready to implement FIST Law – Diokno

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is ready to implement a new law allowing the banking sector to offload about P152 billion worth of bad loans, even at a substantial discount, to ensure a sound and safe financial system as the country recovers from the impact of the COVID-19 pandemic.

BSP Governor Benjamin Diokno said the BSP is now ready to implement Republic Act 11523 or the Financial Institutions Strategic Transfer (FIST) Act and its implementing rules and regulations.

Diokno said the Monetary Board issued Resolution 610 on May 20 approving the amendments to the Manual of Regulation for Banks (MORB) and the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI).

The central bank expects BSP-supervised financial institutions (BSFIs) to sell P152 billion worth of non-performing assets, equivalent to about 30 percent of the P508 billion NPAs as of end-December last year.

This would help reduce the industry’s non-performing loan (NPL) ratio by 0.63 to 0.71 percent starting the second year of the implementation of the law.

“The implementation of the FIST Act reinforces the BSFIs’ primary role of providing financial services and liquidity to support households, business enterprises and productive sectors of the economy by allowing BSFIs to dispose of their NPAs and increase their liquidity and risk-bearing capacity,” Diokno said.

NPLs or bad debts refer to past due loan accounts where the principal or interest is unpaid for 30 days or more after due date. A high NPL ratio indicates weakness in the financial system and poor state of the economy.

The asset quality of the banking sector deteriorated anew as the gross NPL ratio increased to a fresh 11-year high of 4.21 percent in March from 4.08 percent in February due to the impact of the pandemic.

The new law is similar to Republic Act 9182 or the Special Purpose Vehicle Act of 2002, which allowed the establishment and registration of special purpose vehicles to acquire non-performing assets and dispose them in the markets after the Asian financial crisis in 1997 and 1998.

To encourage banks to dispose bad assets, the BSP streamlined the procedures for application of the certificate of eligibility of NPAs. The BSP, the Securities and Exchange Commission and the Insurance Commission would issue the COE for the purpose of obtaining tax exemptions and fee privileges.

Aside from banks, entities covered by the law include financing companies, investment houses, lending companies, accredited microfinance non-government organizations, insurance companies, government financial institutions, government owned or controlled corporations, non-stock savings and loan associations, and non-bank credit card issuers.

The law seeks to urge financial institutions to sell NPAs to FIST corporations (FISTC) that specialize in resolution of distressed assets by providing incentives, such as tax exemptions and reduced registration and transfer fees on certain transactions.

As a safeguard measure, the BSP said all sales or transfer of NPAs should be in the nature of a true sale, wherein the selling BSFI transfers or sells its NPAs to an individual or FlST corporation without recourse for cash or property in exchange for the transfer or sale and without prejudice to the BSFI and the FISTC agreeing on sharing of profits.

This means that the transferor transfers full legal and beneficial title to and relinquishes effective control over the transferred NPAs, which are legally isolated and put beyond the reach of the transferor and its creditors.

Diokno warned that the BSP would revoke the COE of BSFIs found violating the true sale nature of transactions, and would penalize them under RA 7653 or the New Central Bank Act, as amended, and other applicable laws.