SPAV law spurs sale of P97B in non-performing assets by banks

Commercial banks have sold a combined P97 billion in non-performing assets to local and foreign institutions through the use of special purpose vehicles (SPVs), bringing down the industry’s NPL ratio to 9.1 percent, its lowest level since May 1998.

Jojo Salas, Director of Investment Properties & Capital Markets of CB Richard Ellis Philippines Inc., said the latest NPL ratio is 50 percent lower than its historical high of over 18 percent in 2002.

Salas said the Special Purpose Asset Vehicle (SPAV) law’s success clearly showed the willingness of major international institutional investors to make real estate investments in the Philippines when given the right incentives.

"More importantly, the SPV law’s success showed the ability of the National Government, the local private sector and international investors to work together to solve a major impediment to economic growth in the Philippines," Salas said.

The SPAV law, however, expired on April 12. Discusssions are now ongoing whether or not to extend the SPAV law, which provides incentives for both banks and buyers of the banks’ bad assets.

The law provides for a five-year availment period of these incentives, which include tax perks and waiver on various fees. BSP officials earlier said that legislation will be needed to extend the implementation of the SPAV, adding that this law does not need to be enhanced as all perks needed by banks have been considered.

The main purpose of the law is to encourage financial institutions to get rid of NPAs and create liquidity that can then be used to generate growth in the country. The NPAs are made up of NPLs and assets obtained by foreclosure or dacion en pago (commonly referred to as Real and Other Property Owned or Acquired, or ROPOA.

The Bangko Sentral as Pilipinas (BSP) forecasts another P100 billion will be transferred, leaving the system with an average NPL ratio of seven percent. The reason for the larger amount is that "banks have seen actual transactions take place and that there has been some improvement in property values".

As the world’s largest vertically integrated real estate services firm and a leading provider of real estate services in the Philippines CBRE Philippines is at the forefront of helping to solve the country’s NPL problem.

Over the past two years on behalf of major local banks, CBRE Philippines has managed a total of 27 retail auctions where over 900 properties were sold while overall, CBRE Philippines has disposed of approximately P2 billion worth of non-performing asset properties through auctions, sealed bidding and negotiated sales.

Salas said CBRE Philippines will continue to assist local banks with the disposal of their non-performing assets and buyers with the secondary disposal of these assets through negotiated sales, joint venture developments and retail public auctions.