Banks with large NPAs won’t form AMCs just yet

Commercial banks with large non-performing assets (NPAs) have put off plans to create asset management companies (AMC) or special purpose asset vehicles (SPAV).

Banking observers said most banks, instead of going ahead with the creation of AMCs or SPAVs, have opted to wait for the passage of a bill that paves the way for the creation of these facilities.

Most banks, according to sources, feel that putting up AMC or SPAVs before the bill is legislated will prevent them from taking advantage of the perks offered under the law.

Among the biggest banks that had expressed a desire to put up such vehicles are Equitable PCI Bank, Metropolitan Bank and Trust Co. and Land Bank of the Philippines.

There are presently two securitization bills being pushed in the House. These are House Bill 2759 entitled An Act to Establish the Legal and Regulatory Framework for Securitization and the Development of Asset-Backed Securities Market authored by Speaker Jose de Venecia and House Bill 2733 or the Securitization Act of 2001 authored by Congressman Ruben Torres.

Both House bills seek to rationalize the tax, legal and regulatory regime governing asset-backed securities to pave the way for a well-developed and functioning securitization market.

This is expected to provide government with alternative means of generating revenues while developing an active and liquid market. In particular, it will make home mortgages more affordable and accessible.

The proposed bills also mandate the Securities and Exchange Commission to revise rules on securitization to recognize the creation of special purpose vehicles and the creation of private-sector led secondary mortgage institutions that will function as a special purpose vehicle.

Both bills call for the removal of taxes such as value-added tax (VAT) and documentary stamp tax (DST) on the transfer of assets from the seller to the SPV.

Securitization is the process of converting bank loans and other assets into marketable securities for sale to investors. It allows firms or agencies to remove NDAs from their balance sheet. It also allows them to make new loans from the proceeds of securities sold to investors.

The securitization bills are being pushed by the Arroyo administration to pave the way for the sale of banks’ estimated P70-billion worth of foreclosed properties to government that will support the low-cost, mass-housing program of the government.