Banks want scheme to recover bad loans

With banks facing a rising incidence of loan defaults, banking industry leaders said government should adopt a mechanism that would allow banks to recover what they could from bad loans.

Banking experts said that more mature markets in developed economies have long developed mechanisms by which banks are still able to recover non-performing loans.

Development Bank of the Philippines (DBP) chairman Vitaliano Nañagas II, said schemes such as asset management would emerge naturally as the banking sector evolves and matures.

Nañagas said asset management corporations are necessary players in mature markets that give banks a way to turn bad loans around.

Faced with rising bad loans, banks have been increasingly attracted to the idea of selling their bad loans to specialized groups that have the expertise and resource to turn these loans around and make them perform.

Asset management groups normally buy bad loans or bad assets from banks and other financial institutions, at an agreed discount. The asset manager then turns the portfolio over to its own service organization for evaluation, repackaging, restructuring or whatever approach the corporation decides to use.

Aside from NPLs, this approach is also used for non-performing real property that the asset manager purchases, redevelops and then reintroduces to the market.

Congress, however, has not approved the proposed legislative measure that would set the parameters for such schemes which are not covered by existing banking laws.

"At the end of the day, the most important element is the law that would allow it and the market that would encourage it," Nañagas said.

Aside from banks, government itself has been eyeing prospective buyers for its delinquent housing loans. Several asset management corporations have been invited to assess these loans although no deal has been forged as of yet.

Earlier, a US-based investment fund announced it was looking to buy several bad assets in the country, including P100 billion worth of delinquent low-cost housing loans under the National Home Mortgage Finance Corp. (NHMFC).

The $2.25-billion Lone Star Fund revealed yesterday that it is in negotiation with several Philippine banks as well as real property developers and it hopes to close several transactions by the end of the year.

Lone Star is a private equity fund based in Dallas, Texas with primary investments in international mortgage and real estate-related assets and companies, an offshoot of the collapse of the savings and loan institutions in the US.

Following its acquisition of Tokyo Sowa Bank for $340 million as well as the acquisition of several non-performing loan (NPL) portfolios in Korea and Indonesia, Lone Star said it had begun looking at the Philippines as its new investment focus in Asia for the next two years.

Government has been trying to figure out what to do with NHMFC’s P100-billion receivables that it has been unable to collect from some 200,000 borrowers.

Lone Star also plans to acquire real properties, specifically buildings somewhere in Metro Manila, that it can take over, reposition and ultimately dispose of.