SPV Law to bring immediate relief to banking sector — BSP

At least P200-billion worth of bad loans and foreclosed assets would be immediately restructured and disposed of once the Special Purpose Vehicle Law is signed into law early next year.

The Bangko Sentral ng Pilipinas (BSP) said the banking industry is poised to immediately dispose of at least one third of its non-performing assets and the only limitation is the absence of a legal framework within which to conduct the process.

BSP Governor Rafael Buenaventura told reporters that almost immediately after the approval of the implementing rules and regulations, some P200-billion worth of NPAs would be under disposition through various arrangements allowed under the new law.

"This amount is only the initial bulk that is ready for disposition. It’s a combination of non-performing loans and assets that have already been foreclosed," Buenaventura said.

According to Buenaventura, not all of the NPAs would be sold by banks outright, some are lined up for restructuring. "Some of these NPLs can still be restructured such that they would be performing loans again and this is the good part," he said.

Buenaventura said the new law will be signed in January, after going through both houses of Congress.

"In the end, we got a law that might actually be better than we had originally envisioned," Buenaventura said.

The BSP has been sounding the alarm over the sheer bulk of NPAs in the banking sector and the need to provide the mechanisms for dealing with and preventing the imminent collapse of the whole industry.

Buenaventura expressed optimism that the enactment of the SPV law would lure back the investors — such as the US-based Cerberus Capital Management — that have decided to invest elsewhere after Congress repeatedly failed to pass the law.

Dismayed by the delay in the passage of the SPV law, Cerberus bypassed the Philippine banking industry and instead invested $500 million buying bad loans in Thailand where the laws on asset management companies are more transparent.

Known as a leader in the international distressed debt, securities and reorganization market, Cerberus had invested over $20 billion in the market and has an available capital in excess of $7 billion that it planned to invest in Asia, specifically Japan, Korea and Thailand.

Early this year, Cerberus announced that it was planning to invest more than $1 billion in the country; specifically looking for non-performing assets that it planned to buy from banks as soon as the legal framework for the disposition of problematic assets has been set.

Instead, Cerberus has made its move into Thailand and invested half of the fund it had originally intended to invest in the Philippines. This still left some $500 million that could still go into the country but the source said even this half could go elsewhere unless the SPAV law goes through in time.

Cerberus‚ investment would have helped alleviate the banking industry’s non-performing loans now estimated at 18.06 percent of the industry’s total loan portfolio or P288.97 billion, net of foreclosed assets.

When Cerberus started looking into several banks in the country, the company said the only limiting factor to the company’s investments in the Philippines was the number of opportunities and the legal framework that would govern Spas.

Buenaventura said that once the SPV law is signed and implemented, the Philippines would have the chance at cornering investment funds that have been channeled elsewhere instead.

The most recent BSP data indicated that the bad loans by commercial banks improved in September from 17.58 percent of their total loan portfolio down to 16.5 percent but this was no thanks to any real improvement in the amount of non-performing loans in the banking sector.

The BSP said the improvement was due to the change in central bank rules that now allowed banks to virtually write off some NPLs and taking them out of the NP portfolio.

In September, the BSP began allowing banks to take out bad loans from their non-performing loan portfolio without necessarily writing them off, but only if these loans are fully covered with reserves.

The new policy was estimated to reduce the NP ratio of the banking industry by as much as two percentage points, effectively taking out some P46 billion worth of bad loans from the industry’s NPL portfolio.