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SPAV

FIRST PERSON - Alex Magno (The Philippine Star) - February 13, 2021 - 12:00am

What exactly do these honorable congressmen not understand about the SPAV Law?

Congress enacted the Special Purpose Asset Vehicle law nearly two decades ago. The law opened a window for our banks to dispose of their non-performing loans (NPLs), bundling them and putting them on sale at deep discount to international investment banks.

Disposing of NPLs at deep discounts is akin to department stores putting old inventory on sale. During these store sales, consumers may purchase items way below costs. The department store loses money on the items put on sale. But they are able to raise cash to purchase new inventory that should sell better and create healthier profits.

NPLs are like old inventory. It is improbable to make money from them. They trap cash that otherwise could be lent to viable borrowers capable of paying promptly and at a healthy margin.

In addition to the cash trapped in non-performing loans, banks are required to provision more cash to cover possible losses. That cuts the amount of cash available for the bank’s loan portfolio. Bank profits drop and less money is available for viable borrowers. This is bad for the bank and bad for the economy.

SPAV enables the banks to clean up their books, dispose of non-performing loans, reduce the cash set aside for provisioning, generate the money for new loans and build a healthier portfolio. True, they might lose money by offering debt paper at a deep discount. But they make a profit by increasing the volume of loans to more suitable borrowers.

In the long run, we have healthier banks that are able to lend out more and enable businesses to grow. That is good for everyone.

The markdowns on loan paper sold to third parties are booked as losses. That gives the banks tax advantages.

There is really nothing complicated in the SPAV Law. The banks bundle their NPLs and bid out the lot. The best bidder gets the discounted debt paper. They might lose money on some items and make profits on the others.

When the debt paper of a negligent borrower is sold to a third party, he gains nothing. He still owes the same amount of money to the third party buyer of the debt paper. The selling bank might have lost some money putting NPLs on the market at deep discount. But this does not translate into any relief for the negligent borrower.

In a word, a write down is not a condonation. The debt is not extinguished. Only the creditor changed after the debt papers were sold. This is the beauty of SPAV.

It is strange, therefore, that the House committee on good government and public accountability chooses to proceed with its re-litigation of the DBP’s sale of Lopez Group debt papers via SPAV.

This sale was wrongly described as a “condonation” of what the Lopez Group owed the government bank during the debate over the ABS-CBN franchise. The BSP denied there was wrongdoing. The COA denied anything was anomalous.

At any rate, the House committee on franchises voted to junk the television network’s application for a franchise. House Speaker Lord Alan Velasco declared any talk of reopening the ABS-CBN franchise case would have to wait for the next Congress. So why are so many congressmen bent on re-litigating the issues they raised against the Lopez Group – issues proven false in the previous hearings relating to the franchise issue?

Rep. Lito Atienza alone voted against continuing an inquiry on the DBP SPAV. But 17 members of the committee voted to proceed anyway.

Only Atienza understood how SPAV works as a means for banks to cut losses and reinvigorate lending. Or else the other congressmen are simply feigning ignorance (to be kind to them).

But why feign ignorance? There has to be some compelling political or, worse, commercial motive to feign intellectual incompetence.

President Duterte did claim, subject to proof, that the Lopez debts were condoned. He was not properly appraised. Perhaps the congressmen in question simply want to please the President. Instead of correcting what he said wrong, they are out to establish some basis for saying what he said was right.

The President was also told the Lopez Group, ABS-CBN in particular, owed government some amount in taxes. The BIR denied that. The President needs to be properly briefed.

There could be other reasons our honorable congressmen are acting this way, trying to resurrect as an issue what has been established as a non-issue. Some of these reasons are utterly insidious. For want of more solid evidence, I will not speculate here.

The House committee on good government and public accountability hearing is scheduled for Feb. 17. It will likely end up a waste of time.

The DBP sold its NPLs entirely within the framework of the SPAV Law, by open bidding. It is a bulletproof deal.

Among the last banks to avail of the SPAV window, DBP had the best recovery. The recovery (expressed in cents per dollar of book value) was about twice what other banks made. The government bank’s profitability in the succeeding period zoomed.

The COA made no fuss about the deal. The SPAV was undertaken when the late Nestor Espenilla (reputed to be the toughest of regulators) was BSP deputy governor for bank supervision.

Atienza was the solitary vote encouraging this committee to desist from pursuing a non-issue. When the committee convenes next week, the absence of any proof about anything notwithstanding, Atienza will be redeemed.

And, with any luck, the dark motives of the others will be unmasked.

SPAV
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