In an interview yesterday, Salomon Smith Barney (SSB) Asia Pacific Ltd. vice president Bradford K. Ti said their estimate was based on the expected performance of the Philippine economy vis-à-vis that of the US economy.
"Much will also depend on how the asset management committees (AMCs) will be able to operate this year," Ti added.
Last November, the NPL ratio rose to 18.76 percent but is expected to slip slightly to 17 percent in December.
SSB analysts said this is not surprising considering that NPL levels normally "improve" at the end of each quarter, especially end year, due to window-dressing by the banks.
The performance of the AMCs on the other hand will depend largely on the operating environment set by the piece of legislation now in Congress known as the special purpose asset vehicle (SPAV).
"That (SPAV) would set the environment for the way the AMCs, especially the foreign firms, can operate in," TI said.
Meanwhile, the SSB vice president said government should stay away from the AMC market and allow the private sector to take care of the bad debts of the country’s banking system.
"Government must focus on its campaign to keep the budget deficit within target as well as keep the money from infrastructure development and the like," Ti pointed out.
He likewise saw huge limitations in local banks setting up their own AMCs in dealing with their own bad debts. "Local banks should focus on credit while AMCs should focus on acquiring and liquifying the same," he added.
The country’s total NPLs is estimated at P300 billion. Fund managers and foreign-led AMCs projected that NPLs in Asia may be more than $2 trillion.
They said NPLs are usually higher than what the system is reporting as part of its yearend window-dressing activities.
Global liability buyers claim that US investors are ready to invest up to $1.5 trillion on so-called bad assets in Asia including the Philippines’ bad loans. In fact, US "high-risk, bad debt" investors have already acquired $50-billion worth last year mostly in Korea, Thailand and China.
Earlier, Lehman Bros. declared an intention to acquire bad assets and loans in the Philippines while other global financial institutions have already started buying "bad investments" in Asia such as Goldman Sachs, Morgan Standley, Lone Star, Merrill Lynch, Deutsche Bank, GE Capital, Ernst and Young, and Cerebus Partners.
But they made it clear that they would not start buying until there are clear rules regarding the acquisition of bad debts and assets in the Philippines.
"There must be especially a clear and resolute political will on the part of Philippine authorities monetary authorities. Then and only then can legislation be undertaken and implemented covering the acquisition of NPLs as well as the establishment of asset management committees (AMCs) by foreign groups," Jack R. Rodman of Ernst & Young said.