BSP says FIST law ‘great news’ that would reduce banks’ bad loans

MANILA, Philippines—The Philippine banking system will enjoy better insulation against shocks after President Rodrigo Duterte signed into law a measure that will allow financial institutions to unload their bad assets that have risen due to pandemic-induced business slowdown.

Bangko Sentral ng PIlipinas (BSP) Governor Benjamin Diokno welcomed as “great news” the passage of the Financial Institutions Strategic Transfer (FIST) Act into law.

Because of this measure, the BSP said non-performing loan ratio of the banking system will likely decline by anywhere between 0.63 and 0.7 percentage points.

“The FIST law will allow banks to easily dispose bad assets through asset management companies,” he said in a mobile phone message to reporters.

“The new law will help keep the banking system stable despite the effects of the COVID-19 pandemic. It will ease the NPL ratios of banks moving forward,” he said.

He added that, in anticipation of last Tuesday’s signing of the FIST bill into law, the draft implementing rules and regulations was already being prepared by the Securities and Exchange Commission as the lead agency for the relief measure, taking into account inputs from the central bank . The draft rules are currently being circulated to industry stakeholders for their comments, he said.

Under the FIST Act, banks and financial institutions can dispose of their bad loans and assets through special purpose vehicles, similar to a measure introduced after the 1997 East Asian financial crisis.

Central bank data showed that gross non-performing loans in the banking system climbed to P391.66 billion, or 3.61 percent of total loans, as of December 2020 from P234.99 billion, or 2.16 percent of total, in January 2020 or before the pandemic struck.

Under the recently enacted law, FIST corporations will enable banks to offload souring loans and assets, clean up their balance sheets and extend more credit to more sectors in need.

According to the Department of Finance (DOF) which took the lead in having the measure passed, “financial consumer protection mechanisms are included in the FIST Act, which requires FIST corporations to ensure that the borrowers’ rights under existing laws will not be impaired.”

“This mechanism will consist of standards of conduct on disclosure and transparency, conflicts of interest, protection of client information, fair treatment in terms of affordability and suitability of product or service, prevention of over-indebtedness, cooling-off period, and objectivity, effective recourse and exhaustion of all remedies, among others,” according to the DOF.

TSB