Banks’ soured loans seen to fall by 30% due to FIST law

Monetary authorities expect at least 30 percent of the banking system’s non-performing assets (NPAs) will be disbursed through Financial Institutions Strategic Transfer Corporation (FISTC) within the next two years.

In a virtual briefing Monday, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said their projection is a conservative one and was based on the level of NPAs sold to special purpose vehicles (SPVs) after the Asian financial crisis.

“This translates to at least PHP152 billion in NPAs, or 30 percent of (the) banking system’s total NPAs as of 31 December 2020, which is estimated at PHP508 billion,” he said.

Under the FIST law, which was signed into law on Feb. 16, 2021, financial institutions (FIs) may dispose of their NPAs to FISTC to boost their resources and enhance their ability to lend to more borrowers and help ensure the strength of the domestic financial system.

Diokno said the FIST law is a “timely reform” and incorporates lessons from the Asian financial crisis.

He said FIST is expected to post higher gains than the Special Purpose Vehicle (SPV) law since it was signed into law while the crisis is raging. The SPV law of 2002, on the other hand, was instituted several years after the 1997 financial crisis.

Diokno said FIST is projected to cut banks’ non-performing loan (NPL) ratio by 0.63 to 0.71 percentage points.

“We expect the reduction in NPL (non-performing loan) ratio to happen during the first two years of the effectivity of the FIST Act when the tax exemptions and FIST privileges may be availed by the financial institutions,” he added.

Section 15 of the FIST law provides the list of tax exemptions and fee privileges that cover documentary stamp tax, capital gains tax, creditable withholding income tax, and value-added tax.

“So this two-year deadline dictates the urgency and so parties concerned must be decisive,” Diokno said.

Lawyer Noel Neil Maliman, deputy director of the BSP Office of the General Counsel and Legal Services, said they have not received a report from the Securities and Exchange Commission (SEC) on the number of entities that indicated their intention to start a FISTC.

“However, there have been several communications from FIs (that are) very interested in the application of the FIST Act,” he said during the same briefing.

He added although they have no data yet on the possible amount of transactions under this law, “we assure you that there is interest in this new law.”

Source: Philippines News Agency

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