IMF urges BSP to tighten rules on sale of bad assets

The International Monetary Fund (IMF) said the Bangko Sentral ng Pilipinas (BSP) should tighten its regulatory requirements on bad assets, expressing concern over the slowness of the banking industry in cleaning up their portfolio.

According to the IMF, the BSP should also sustain its pressure to compel the industry to consolidate further while also pressing Congress to complete the long-delayed amendments to the central bank charter.

The IMF said in its latest Article IV review that the Fund was calling for further steps to strengthen the banking sector even as the industry managed to convince authorities to extend the incentives for getting rid of bad assets under the Special Purpose Vehicles Act or SPVA.

“While encouraging progress has been made in disposing of non-performing assets (NPAs), the Fund observed that the stock of repossessed real estate assets remains large,” the IMF said in its review.

“Solving this problem will be key to allowing the banking sector to contribute to the investment recovery,” the IMF said.

After the initial snag following the extension of the SPVA incentives, the BSP reported earlier that banks have disposed of P31 billion worth of bad assets so far.

The BSP said yesterday that the banking industry has speeded up its disposition of bad assets and officials expected the disposition of P51 billion more in the coming months.

However, this was still significantly less than the P100 billion worth of assets that the BSP expects banks to unload after the SPVA incentives are extended for another two years.

According to the IMF, on the other hand, the pace of unloading bad assets should be speeded up, cleaning up the bad loans portfolio of the industry as soon as possible.

The IMF said Philippine authorities should tighten regulatory requirements on NPAs further if disposals do not accelerate.

Despite criticisms, however, the BSP is more than satisfied with the progress being made by banks in cleaning up their loan portfolio while under pressure to build up capital.

According to BSP Deputy Governor Nestor Espenilla Jr earlier, it was understandable for Philippine banks to take longer to recover from the 1997 Asian crisis especially since, unlike other countries, the government did not take a direct hand in rescuing the banking industry.

“Our government does not have the resources to take a direct bail-out of banks so our banks have had to do this all on their own, often from internally-generated funds,” Espenilla said.