Sen. Ralph Recto, chairman of the Senate ways and means committee, has submitted the report for plenary debates which recommended an 18-month extension of the period for the establishment and registration of SPAVs.
The committee also recommended an extension for two years the transfer of non-performing assets of banks and financial institutions to the SPAVs without changing the existing fiscal incentives.
In his sponsorship speech, Recto cited the Bangko Sentral ng Pilipinas (BSP) which said the extension of the SPAV would result in the clearing of another P100 billion worth of non-performing assets from the books of the banks and financial institutions.
"This is conservative given that the market now fully understands the law and the implementing mechanisms are now already set up," Recto said.
Recto pointed out that one of the drawbacks of the SPAV Act in its initial implementation was the lack of understanding of the law.
"This confirms suspicions that while bank forms may be crammed with fine print, bankers only read the bottom line," he said.
Recto, however, blamed the BSP for being slow in drafting the implementing rules and regulations (IRR) of the law.
The BSP earlier came out with the IRR for the SPAV in 2003, a year after Congress passed the law.
Notwithstanding the one-year delay, the SPAV law managed to bring about the disposal of P97 billion (book value) in non-performing assets of banks and financial institutions.
For the entire banking system, the SPAV cut total NPAs by almost 20 percent while the non-performing loans ratio was cut down to 8.7 percent from a high of 18 percent in 2002.
Overall, NPA ratio plunged to 9.4 percent from a peak of 14.9 percent.
"This was made possible because tax and other fiscal incentives under the SPAV law reduced the pain of the distressed assets sales," Recto said.
"But our job is not yet finished. Our banks still groan with the weight of NPAs. At P420 billion, NPAs still account for about one-tenth of total banking assets," he added.
If the target of P100 billion is realized, Recto said the NPL ratio would further fall to below 6.5 percent or just a little above the pre-crisis level.
Prior to the enactment of the law, NPAs of the Philippine banking system reached P520 billion as of June 2002.
These consist of P316.5 billion in NPLs and P203.4 billion in real properties owned or acquired (ROPOAs).
While the Asian financial crisis in 1997 was attributed with causing the rise in NPAs, some sectors argued that the crisis merely exposed the existing weaknesses of banks.
"When it barreled into our country, it ripped out the flimsy justification and the light due diligence that layered many loan structures," Recto said.
Apart from improving asset quality indicators and reviving the property market, Recto noted that the participation of major foreign funds in SPAV transactions also reflected international investor interest.
"In short, SPAVs did not only clean banks’ books but served as a come-on to investors," he said.
Once the P100 billion target is realized, Recto noted that more credit would be available for borrowers including the small and medium enterprises.
The House of Representatives has passed its own version of the bill calling for the extension of the SPAV law. — Marvin Sy