Individual buyers snap up P5B worth of non-performing assets of banks

Local banks, hoping to avail themselves of the incentives under the Special Purpose Vehicle Act (SPVA), have applied for the transfer of about P5.112 billion worth of non-performing assets to individual buyers.

According to the Bangko Sentral ng Pilipinas (BSP), two special purpose vehicles have been set up by separate investor groups, including one possibly involved in the sale of the NPAs of the Metropolitan Bank and Trust Co. (MBTC).

The BSP would not confirm if one of the two SPVs was the group involved in the MBTC transaction. According to officials, the transfer of NPAs to individual buyers are moving faster than the bulk transfer to SPVs.

BSP deputy governor Alberto V. Reyes said a recent survey shows that 10 universal banks, in addition to the Bank of the Philippine Islands, Philippine National Bank and Equitable-PCI Bank, as well as five branches of foreign banks, have intentions of applying for incentives with the central bank.

So far, however, only three commercial banks and two branches of foreign banks have actually filed applications for incentives for the transfer of their NPAs.

According to Reyes, nine banks have applied for the transfer of assets to individual buyers involving 154 accounts amounting to P2.142 billion under a dacion en pago arrangement while 172 accounts amounting to P2.98-billion worth of ROPOA (real or property owned or acquired) assets are about to be transferred.

Reyes said two SPVs had been formed and registered with the Securities and Exchange Commission (SEC) as of Aug. 1. They were identified as the Assets Conversion Enhancement Strategies (ACES) and Colony Investors Inc.

"Everybody is looking at BPI transfer of NPLs (since) this could be a model to be followed by the others," Reyes said. "If all these banks will firm up their intention to avail (of incentives), this will be an improvement of NPA position of banks and a good indication of steps being taken by banks [to clean up their portfolio]."

Banks have been holding off their plans to transfer their NPAs under the new law pending the decision on whether the BSP would allow the staggered booking of losses arising from the discounted sale of non-performing assets, despite its deviation from international accounting standards.

Banks went on to formally apply for incentives after the BSP approved the accounting guidelines for the sale of NPAs and the rule that enabled them to window-dress the entry of losses in their books of accounts, subject to full disclosure requirements.

This way, bank would not have to take a single big hit when they sell their NPAs to an SPV. They would be able to "ration" the losses up to seven years for accounting and tax purposes.

Reyes said the guidelines provide that the bank’s external auditor should be in full agreement with the deviations as well as the Securities and Exchange Commission (SEC) and the Bankers Association of the Philippines (BAP).

Reyes said that the booking of losses arising from the discounted sale of NPAs would be spread out over a maximum period of seven years, the same length of time that special purpose vehicles were allowed to dispose of the NPAs they have acquired.

During the period, Reyes said no dividend should be paid, whether common or preferred shareholders.

The BSP was at first reluctant to allow banks to gradually book their losses from discounted NPAs because it deviated from the GAAP. Auditing and accounting firms also did not want to allow banks to deviate from the GAAP, especially since they would have to be participants as qualified external auditors.

According to Reyes, however, the BSP had evaluated precedent cases in other jurisdictions, specifically Taiwan, where such deviations were being practiced with no adverse reaction from the market.