Metrobank repackages sale of bad loans to Rabobank of Netherlands

Metropolitan Bank and Trust Co. (Metrobank) is repackaging the planned sale of its bad loans to Rabobank of the Netherlands and will re-apply it for approval by the Bangko Sentral ng Pilipinas (BSP) under the new Special Purpose Vehicles Act.

The transaction is expected to be the first to make it through under the new law and sources said Metrobank was close to polishing the deal with Rabobank in order to apply for incentives.

According to sources, however, the changes in the sale of Metrobank’s non-performing loans would likely include adjustments in the contents of the portfolio and the actual value of the transaction once it is completed.

The original plan was for Metrobank to sell about P16 billion worth of NPLs to Asia Recovery Corp, an asset management company formed by the Metrobank Group to handle the sale.

Under the new plan, however, Metrobank was expected to sell its NPL through another special purpose vehicle where the bank was not a stockholder. The SPV, identified as the Assets Conversion Enhancement Strategies (ACES), has already registered with the Securities and Exchange Commission.

If approved, the sale and purchase agreement between Rabobank and Metrobank would be the first ever in the banking industry and probably the largest in amount.

Metrobank had originally planned to enter a transaction with Lehman Brothers, but the bank turned around and pursued negotiations with Rabobank instead. Rabobank, is a triple-A rated bank, and one of the top 100 banks in the world based on a recent Euromoney survey. Rabobank has been particularly active in purchasing NPLs in the Asian region, especially in Indonesia where it has acquired NPL assets from Indonesian Bank Restructuring Agency (IBRA).

Banks have finally begun moving their non-performing assets to avail themselves of the incentives under the SPVA, but the emerging trend involved the sale of individual assets instead of entire portfolios.

According to BSP Deputy Governor Alberto V. Reyes, a survey of banks revealed that 10 universal banks, in addition to the Bank of the Philippine Islands, Philippine National Bank and Equitable PCI Bank, as well as five branches of foreign banks had intentions of applying for incentives with the central bank.

So far, however, only three commercial banks and two branches of foreign banks have actually filed applications for incentives for the transfer of their NPAs.

According to Reyes, nine banks have applied for the transfer of assets to individual buyers involving 154 accounts amounting to P2.142 billion under a dacion en pago while 172 accounts amounting to P2.98 billion worth of ROPOA (real or property owned or acquired) assets were also about to be transferred.

"Everybody is looking at BPI’s transfer of NPLs (since) this could be a model to be followed by the others," Reyes said. "If all these banks will firm up their intention to avail (of incentives), this will be an improvement of NPA position of banks and a good indication of steps being taken by banks [to clean up their portfolio]."

Banks have been holding off their plans to transfer their NPAs under the new law pending the decision on whether the BSP would allow the staggered booking of losses arising from the discounted sale of non-performing assets, despite its deviation from international accounting standards.

After the BSP approved the accounting guidelines for the sale of NPAs, banks went on to formally apply for incentives and the rule that enabled them to window-dress the entry of losses in their books of accounts, subject to full disclosure requirements.

This way, banks would not have to take a single big hit when they sell their NPAs to an SPV. They would be able to "ration" the losses up to seven years for accounting and tax purposes.