Finance Secretary Carlos Dominguez III said Wednesday that swift action to preserve the asset quality of banking institutions will ensure the continued strength of the financial sector which, in turn, will help the economy recover faster from the global health and economic crises spawned by the coronavirus pandemic.
Dominguez stressed this point in calling on the Congress to act fast in approving the proposed Financial Institutions Strategic Transfer (FIST) Act which, he said, will protect the financial sector from any lasting damage from the unprecedented economic crisis by guaranteeing a steady source of credit for the pandemic-hit sectors of the economy while providing safeguards to consumers.
He recalled that to stem the damage to the economy of the 1997 Asian financial crisis that lasted until the early 2000s, a similar measure—the Special Purpose Vehicle (SPV) Act of 2002–was passed by the Congress, but this law was enacted only five years later when most distressed businesses had already recovered and able to meet their financial obligations.
Had the SPV law been available earlier at that time, the local banks could have helped businesses recover faster, Dominguez told senators.
“This time, we are acting swiftly and proactively while our banks’ asset quality is still relatively solid. Financial institutions also need time to learn how to use these instruments. Your Honors, now is the time to act. Fireproofing, after all, is best done before the fire,” said Dominguez during the virtual joint hearing on the FIST bill conducted by the Senate committees on banks, financial institutions and currencies, and on ways and means.
The FIST bill was among the priority measures that President Duterte urged the Congress during his 5th state-of-the-nation address last July 27 to act on quickly as part of the government’s economic recovery program.
The House of Representatives had already passed its version of the FIST bill on third and final reading before the sine die adjournment of the Congress in June.
“Enacting FIST will fortify the financial sector and keep it strong and stable for the difficult task of rebuilding our economy,” Dominguez said.
Under the FIST Act, allowing banks to outsource the management of their non-performing assets to asset management companies will enable them to focus on what they do best, which is their primary task of lending to sectors in need of credit, Dominguez said.
“By keeping non-performing assets contained and managed, FIST will expand the amount of risk banks can take. This benefit cannot be understated in a crisis, when lending to businesses is riskier but also more urgently needed,” he said.
Dominguez said the FIST Act is an “improved version” of the old SPV law, and will help the financial system mobilize credit for the productive segments of the economy.
FIST will also encourage the private sector, government financial institutions (GFIs), and government-owned or -controlled corporations (GOCCs) to help rehabilitate distressed businesses, he added.
The measure provides tax incentives to defray the transaction and transfer costs of non-performing assets to asset management companies.
Dominguez said this would entail foregone revenues of between PHP3.3 billion to PHP13 billion every year for the next five years to clear the books of banks of bad debts, and to keep the economy going.
“We believe that the economic benefits of strengthening the financial sector through this effort outweigh the fiscal costs of doing so,” he said.
Dominguez said the Congress’ swift action on the FIST Act will boost trust and confidence in the financial system, as banks remain among the country’s strongest economic assets as a result of prudent reforms put in place by the past administrations, and the sound macroeconomic and fiscal management policies of President Duterte.
In the past, the lessons learned from the Asian financial crisis along with reforms such as the SPV allowed the financial sector to recover better, Dominguez said.
Along with other international observers, The Economist magazine recently affirmed the strength of the country’s financial sector by ranking the Philippines sixth in financial strength among 66 emerging economies, Dominguez noted.
“We transformed our banks from a sector severely weakened by crisis to one of the strongest financial sectors among emerging economies,” Dominguez said.
He said this strength is bolstered by the Philippines’ high investment-grade credit ratings that “have endured a global tide of downgrades and remain at the highest levels they have ever been.”
Source: Philippines News Agency