The House of Representatives has started investigating special purpose vehicles (SPVs) and banks following allegations that some financial institutions had been declaring false sales of nonperforming assets just to sanitize their balance sheets.

The investigation, which started Tuesday, is being done by the House banks and financial intermediaries committee chaired by Rep. Jaime Lopez.

The SPV Act of 2002, which first lapsed in 2005 but was extended for a few more years, expired earlier this year. The law grants tax incentives on the sale of nonperforming assets of banks and other financial institutions to SPVs. The objective was to encourage the sale of soured assets to help keep the banking industry healthy.

Rep. Joel Villanueva of the CIBAC party-list group and Rep. Justin Chipeco said in a statement that the House committee had received reports that some financial institutions, mostly foreign banks, were declaring false sales of soured assets to SPVs.

Such a move cleansed their balance sheets at a low cost and gave them the tax incentives granted under the SPV law, including the exemption of asset sale to SPVs from the documentary stamp tax and the capital gains tax.

The House committee said that it also received reports that some banks even created their own dummy SPVs to facilitate more easily the false sales of soured assets.

At the committee?s first hearing, Director Fernando Aballa of the central bank said the SPV law helped banks improve their financial standing and recover from the impact of the 1997 Asian financial crisis.

The crisis was aggravated partly by a substantial decline in prices of real estate used as loan collateral and loan defaults by corporate clients that suffered from losses.

Lopez agreed that the SPV law had a huge contribution to improving the country?s banking sector. Nonetheless, the House committee stressed the need to conduct an investigation in aid of legislation to dig deeper into reports of false sales.

The first bank to be questioned during the Tuesday hearing was United Overseas Bank (UOB) Philippines, owned by UOB Singapore. But UOB Philippines president and chief executive Emmanuel Mangosing asked that he be made to answer questions in a closed-door session because the topic was too sensitive.

The House committee agreed to Mangosing?s request.

There were also reports reaching the House committee that claimed some banks were putting up SPVs so that they could acquire land in the Philippines, an act prohibited under the Constitution.

There were proposals that the SPV law be revived, but the House committee said the prudence of such a suggestion would be determined following the outcome of the investigation.