Proposed SPV bill to free up to P3 trillion for lending

MANILA, Philippines — Philippine banks expect to free up to P3 trillion for additional lending if the industry is able to dispose of at least 40 percent of non-performing loans under a proposed bill establishing a special purpose vehicle (SPV) that will acquire bad loans and stagnant properties from embattled financial institutions, according to the Bankers Association of the Philippines (BAP).

During the virtual meeting of the Senate committee on banks, financial institutions and currencies, BAP president Cezar Consing said the estimated additional funds that may be freed up for lending  is based on the assumption that 40 percent, or about P400 billion, of banks’ non-performing loans would be sold under the proposed Financial Institutions Strategic Transfer Act (FIST).

Consing, who is also president and chief executive officer of Ayala-led Bank of the Philippine Islands (BPI), said the local banking industry’s bad loans may reach P1 trillion this year as businesses grapple with the impact of the pandemic.

Assuming a recovery rate of 25 percent, Consing said proceeds from the sale of NPLs and non-performing assets (NPAs) to SPVs and FIST corporations would reach P100 billion.

Likewise, Consing said capital that may be freed up arising from the sale of bad loans may reach P700 billion, including the P100 billion proceeds from the sale of NPLs and NPAs.

Based on the current leverage ratio of 4.3 times, Con-sing said the additional funds that could be deployed for lending may reach P3.01 trillion, bigger than the combined loan book value of BPI and  Metropolitan Bank & Trust Co. (Metrobank).

BAP is advocating for the early passage of Senate bills 1594 and 1596 or the FIST Act to help banks unload bad loans and assets through SPVs.

Through Republic Act 9182 or the Special Purpose Vehicle Act of 2002 and RA 9343 or the amended SPV Act, Consing said banks were able to offload P146.2 billion or 28.1 percent of the total non-performing loans as of June 2002.

The BAP chief said the previous laws on SPV also helped the industry lower its NPL ratio to around 4.9 percent in 2007 from a high of 16.9 percent in 2001 after the Asian financial crisis and at the same time increase lending to 13.4 percent after contracting by 29.1 percent.

Under the proposal, the FIST encourages financial institutions to sell non-performing assets to asset management companies that specialize in resolution of distressed assets, through fiscal incentives.

The proposed bill will authorize the Department of Finance (DOF) to extend two and five-year entitlement periods to avail of tax exemptions and fee privileges   by a maximum of another two years and five years, respectively.

Other fiscal incentives include exemption from documentary stamp tax, capital gains tax, creditable withholding tax, and value-added tax or gross receipts tax as well as 50 percent reduction in the registration and transfer fees imposed by the Land Registration Authority (LRA), among others.

For his part, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the enactment of the FIST could help ease banking system stress through a joint-government and private sector undertaking.

“The BSP supports the laudable objectives of the FIST bill to induce economic activity and improve the liquidity of the financial system, enabling financial institutions to respond to the looming increase in NPAs, and therefore, propel economic growth,” Diokno said.

Diokno said the enactment of the FIST  would assist the financial system perform its role of efficiently mobilizing savings and investments for the country’s economic recovery as well as its sustained growth and development.

Diokno said banks would not have to incur costs related to the management and administration of NPAs, liquidity within the banking system would increase, while bank capital would be freed up, increasing the system’s risk-bearing capacity and ability to expand investment and lending activities.

Diokno said improvements from the previous laws include the expanded coverage of financial institutions, participation of foreign investors, true sale nature of transfers, prohibition on control and limitation of ownership of FIST corporations, removal of 90-day restructuring period, among others.