Submit list of bad loans for FIST – BSP

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has ordered banks to submit a list of soured loans and assets to be disposed of at substantial discounts through a new law to ensure a sound and safe financial system as the country recovers from the impact of the COVID-19 pandemic.

BSP Deputy Governor Chuchi Fonacier said the Monetary Board has issued Resolution  610, approving the guidelines for BSP-supervised financial institutions (BSFIs) which  intend to obtain certificate of eligibility for purposes of getting tax exemptions and privileges for the sale of non-performing assets (NPAs) under Republic Act 11523 or the Financial Institutions Strategic Transfer (FIST) Act.

Fonacier said the certificate would refer to the eligibility of the NPAs, including non-performing loans, as well as real and other properties acquired (ROPA) of BSFIs availing themselves of the tax exemptions and 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.

Under the implementing rules and regulations of the new law, Fonacier said that only assets that have become non-performing on or before Dec. 31, 2022 are eligible for incentives.

Transactions that are entitled to incentives include the transfer of NPLs or ROPAs by banks to FIST corporations, dacion en pago of an NPL by a borrower or by a third party to a BSFI, and the transfer of NPLs or ROPAs by banks to individuals.

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.

Prior to the filing of an application for COE, Fonacier said BSFIs should coordinate with the BSP its intention or plan to sell or transfer its NPAs pursuant to the FIST Act and to develop a reconciled and final master list of eligible NPAs.

Fonacier said the regulator started on March 31 to accept sworn certification, letters of intent, master lists, NPA schedules, corporate secretary’s certificate on the approval of board of directors or board of trustees on the plan to sell or transfer NPAs to a FIST corporation  or individual.

She also said banks may opt to update their master lists every end of each quarter  up to Jan. 31, 2023.

The BSP expects the banking sector to unload P152 billion worth of NPAs equivalent to about 30 percent of the P508 billion NPAs as of end-December.

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,” BSP Governor Benjamin Diokno said earlier.

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.

As a safeguard measure, the BSP said all sales or transfer of NPAs should be in the nature of a true sale where 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 FIST corporation 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 and the transferred NPAs are legally isolated and put beyond the reach of the transferor and its creditors.

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