BSP urges banks to use FIST law to cleanse books of billions in bad debt

MANILA, Philippines—Banks should take advantage of time-bound tax exemptions and fee privileges under a new law meant to make it easier for financial institutions to cleanse their books of loans that went bad during the COVID-19 pandemic.

This was the appeal made by the head of the Bangko Sentral ng Pilipinas (BSP), who said his agency expected as much as P130-billion of credit gone bad and nonperforming assets to be unloaded by lenders to asset management companies under the Financial Institutions Strategic (FIST) Act.

“The timing of the passage of this law is significant,” BSP Governor Benjamin Diokno said at an online briefing. “In the past, in response to the Asian financial crisis, a similar law creating asset management corporations was passed four years after the crisis.”

“This time, the law was passed in the same year of the crisis and incorporates lessons from the Asian financial crisis,” he added. “We are more prepared this time around. In fact, with FIST, non-performing loans ratio of banks is expected to decline by 0.63 to 0.71 percentage points.”

Diokno said the BSP recognizes the importance of offloading nonperforming assets to free up needed liquidity for lending to productive sectors, which is crucial to economic recovery. As such, the BSP urges stakeholders to maximize the benefits provided by the FIST Act.

To encourage BSP-supervised financial institutions in this regard, the BSP is streamlining the procedures for application of the certificate of eligibility of NPAs. Under the law, approval will be issued by the regulatory authority—the BSP, Securities and Exchange Commission or the Insurance Commission—for the purpose of obtaining tax exemptions and fee privileges.

Aside from banks, entities covered by the law include financing companies, investment houses, lending companies, accredited microfinance nongovernment organizations, insurance companies, government financial institutions, government owned or controlled corporations, non-stock savings and loan associations and non-bank credit card issuers.

The law seeks to urge financial institutions to sell nonperforming assets to so-called Financial Institutions Strategic Transfer Corporations, which specialize in resolution of distressed assets by providing incentives, such as tax exemptions and reduced registration and transfer fees on certain transactions.

Signed by President Rodrigo Duterte last February, the law is seen to promote investor and depositor confidence and result in the efficient conduct of financial intermediation.

Tasked with drawing the law’s implementing rules and regulations are the SEC, BSP, Department of Finance, Bureau of Internal Revenue and Land Registration Authority.

The SEC, which is the primary implementing agency, has approved the draft rules and has circulated it among other members of the approving body.

Earlier this month, the Monetary Board approved the draft rules, which was transmitted to the SEC the following day. Further refinements are being made before their publication.

TSB