KBs start work on P600-B bad assets

Major commercial banks are now holding serious talks with interested parties mostly foreign for the formation of asset management corporations (AMCs) for the disposal of banking system’s bad assets reportedly reaching P600 billion.

President Arroyo signed Republic Act (RA) 9183, otherwise known as the Special Purpose Asset Vehicle (SPAV) bill last week, thus paving the way for the country’s banking system to start disposing of their bad debts.

"We are talking again with those companies that have expressed interest in setting up SPAVs or asset management companies (AMCs)," said Cesar Virata, chief executive of the Rizal Commercial Banking Corp. RCBC). "We had previous discussions earlier but it was held in abeyance due to the absence then of a law."

Virata explained that they have not determined how much and which of their bad debts were up for grabs. He likewise failed to give the amount of the bank’s non performing assets (NPAs) and non-performing loans (NPLs) although he admitted that RCBC had bad debts from the troubled National Steel Corp. (NSC) and the Uniwide Group of Companies.

Virata, who is also the president of the Bankers Association of the Philippines (BAP), said that most of the foreign players interested in forming AMCs would most likely be interested in big ticket NPAs of banks since in the long term it would be more cost effective and profitable.

"We can not dispose of everything, there are several small accounts that may not be of interest for the SPVs. It is probably the larger accounts that would be more interesting to them," he added.

The Bank of the Philippines Islands (BPI) was also ridding itself of some of its bad debts as it placed some P2 billion in the auction block. The bank’s total bad assets reportedly amounts to P14.5 billion.

BPI senior executive vice president Aurelio R. Montinola III said that they have been holding talks with two foreign AMCs. And depending on the interest of the buyers, the bank could infuse another 10 to 15 percent of its bad assets to the auction.

Also expected to take advantage of RA 9183 is Equitable PCI Bank which reported an NPL ratio of 54.9 percent after increasing its loan loss provisioning from the 46.1 percent level, and the Philippine National Bank (PNB) which has bad debts reaching P35 billion.

Industry leader Metropolitan Bank and Trust Co. (Metrobank) had earlier entered into an agreement with RaboBank of the Netherlands to acquire several of its troubled accounts. The bank’s total bad assets peaked at P31 billion last year.

The bank had earlier held serious talks with Lehman Brothers for the disposal of P15-billion worth of bad assets last year. However, the absence of the SPAV law plus disagreements on valuation forced Lehman Bros. pull out of the discussions.

Medium-sized commercial banks like Chinatrust (Philippines) Commercial Bank Corp. (Chinatrust Phils.), Security Bank Corp., and Union Bank expressed interest in looking at the advantages of the new law in relation to their bad assets. However, executives of the three banks said that they were not hard pressed since "we have very low volumes of bad debts."

"But there are tax incentives in the law that may come in handy in disposing of some of our NPLs," they added.

The commercial banking system’s NPL ratio dropped to 16.36 percent or roughly P266.84 billion in October last year.