"We are trying to design a special purpose vehicle (SPV) that will essentially have the same function as an asset management company (AMC), much like the SPAV being pushed by Congress to get rid of banks’ bad loans and idle assets," said BSP Governor Rafael Buenaventura.
Buenaventura said that since it may take some time for the "Special Purpose Asset Vehicle Act of 2001" authored by Speaker Jose de Venecia to be enacted into law, the central bank wants early on to encourage banks to dispose of their NPLS and foreclosed properties so that they could improve their finances and their liquidity.
"The idea is to provide the banking sector with the proper environment that will allow banks to transfer their assets to the vehicle we are creating. We just want to speed up the process and make banks’ recovery faster," said Buenaventura.
The SPV the central bank will create basically have the same functions of an AMC or SPAV, except that it won’t have a legal mandate.
"The beauty of our proposal is that the interim body we want to create will have the same benefits provided by an AMC or SPAV. The body will just be a medium to facilitate talks between the banks and interested parties. Now once the bill in Congress is passed, we just transfer the assets to the SPAV. That will be better because it will have the mandate needed to dispose of the NPLs and properties," explained Buenaventura.
The BSP scheme calls for banks to turn over their NPLs and foreclosed assets to the central bank-supervised SPV. The SPV in turn, will initially pay 10 to 20 percent of the value of the assets while banks agree to write off about 30 percent of the loans.
To take care of the balance, the SPV will issue so-called subordinated notes to the banks stating full payment will be made in about five years or when a third party agrees and also pays in full for the assets.
After the process is completed, the banks still get to recover in part the value of their NPLs and foreclosed assets and enable them to improve their liquidity.
"Subordinated notes can be kept as non-earning assets so that they won’t be reflected in the banks’ books as NPLs for about five years," said Buenaventura.
The BSP chief said the central bank will try to put in place the SPV before the end of the year.
The BSP hopes its proposed SPV will lure banks to act faster on their bad loans since these will further drain future resources and earnings of banks.