BSP seeks relief for banks hobbled by bad loans
The Bangko Sentral ng Pilipinas (BSP) is pushing for the passage of a law that would help banks and other financial institutions survive the surge in bad debts amid the economic fallout brought about by the coronavirus disease 2019 or COVID-19.
BSP Governor Benjamin Diokno said the enactment of the proposed Financial Institutions Strategic Transfer (FIST) Law would further enable the financial system to mobilize savings and investments for the country’s recovery postCOVID-19.
“The enactment of the FIST Law will not only complement our regulatory and supervisory initiatives to mitigate the adverse effect of the COVID-19 pandemic but is also a necessary measure to assist the domestic financial system in the aftermath of this health crisis,” Diokno said in a virtual press briefing.
The FIST Law seeks to encourage financial institutions to sell their non-performing assets (NPAs) to asset management companies to be created as Financial Institutions Strategic Transfer Corporations (FISTCs).
The firms would specialize in the resolution of distressed assets by providing fiscal incentives including tax exemptions and reduced registration and transfer fees on certain transactions.
The proposed legislation is similar to Republic Act 9182 or the Special Purpose Vehicle Act of 2002 that allowed the establishment and registration of special purpose vehicles to acquire non-performing assets and dispose them in the markets after the Asian financial crisis in 1997 and 1998.
“We are very confident this won’t be as bad as the Asian financial crisis, because at that time we were unprepared. It is better to have the FIST Law now in anticipation of what might happen,” Diokno added.
Latest data from the central bank showed the nonperforming loan (NPL) ratio of Philippine banks stood at 2.21 percent in end-March. The ratio is a lagging indicator of banking system performance.
A high NPL ratio indicates weakness in the financial system and poor state of the economy.
Based on a stress test conducted recently, Diokno said the banking system would survive even if the NPL ratio rises to five percent as a result of defaults due to the COVID-19 pandemic.
“We are assuming the worst. We have prepared them (banks) well. The banking system is sound,” he added.
The BSP chief also said the passage of the law would promote investor and depositor confidence and will result to the efficient conduct of financial intermediation.
Economic managers through the Development Budget Coordination Committee (DBCC) now expect the Philippine gross domestic product (GDP) contracting between two and 3.4 percent. The last time the economy contracted was in 1998 at 0.5 percent due to the Asian financial crisis.