Banks unload P149-B bad assets under SPVA

Local banks have unloaded a total of P148.7 billion worth of bad assets under the Special Purpose Vehicles Act.

The Bangko Sentral ng Pilipinas (BSP) told reporters yesterday that based on the preliminary figures for the extended Special Purpose Vehicles Act (SPVA-2), banks have unloaded a total of P52 billion worth of non-performing loans and non-performing assets.

According to BSP Governor Amando M. Tetangco Jr., the preliminary exit report for SPVA 2 indicated that the combined amount of bad assets unloaded under the original SPVA and the extended program actually amounted to P148.7 billion.

“These are bad assets disposed of through various SPV-related transactions,” Tetangco said, adding that the volume of bad assets unloaded by banks under the program was enough to significantly improve the asset quality of the entire banking sector.

“So we do not believe there is a need for a third extension because the program has achieved its purpose as far as providing a venue for unloading bad assets,” Tetangco said.

According to Tetangco, the non-performing loans and non-performing assets ratios of the banking industry had already improved and moved much closer to pre-1997 level.

The accumulated bad loans of universal and commercial banks, for example, had gone down to 4.04 percent of their total loan portfolio compared with last year’s 5.19-percent ratio.

Total NPLs of U/KBs, according to the BSP, now stood at P94 billion.

The SPVA had become necessary after the Asian financial crisis in 1997 because the government did not have the funds to bail out Philippine banks that were left with NPAs and NPLs they could not unload.

Instead, the government offered tax and accounting incentives for banks that decided to bite the bullet and unload their bad assets at a loss under the SPVA.

At the time, Tetangco said the only option available to banks was to sell these bad assets at a discount rather than continue to carry them in their balance sheets and be penalized for it.

When the SPVA ended in 2005, it was extended for another two years under SPVA 2 and the BSP is still wrapping up the exit report for the program when talks started anew that a possible SPVA 3 was being discussed in Congress.

But Tetangco said the market has significantly improved since the SPVA program was introduced and banks now had a number of options for unloading their bad assets.

“Now banks can unload these assets by entering into joint ventures with developers which we have allowed them to do,” Tetangco said. “Banks can also go through public auctions and for individual sale of specific assets, sometimes that’s the better option for them.”

The SPVA offered incentives to banks to unload their bad loans through bulk sales that would qualify for various perks including tax breaks and preferential accounting treatment.

The SPVA officially ended on May 13 but the BSP gave banks a 30-day grace period to file applications for incentives after the expiration of the extended SPVA.

The BSP said the amount of SPVA transactions might have been less than the target but there were qualitative differences between the availment of incentives under SPVA 1 and SPVA 2.