NHMFC bad loans not qualified under SPV law

The sale of some P14-billion worth of bad loans of the National Housing and Mortgage Fund Corp. (NHMFC) is not qualified for incentives under the Special Purpose Vehicle Act (SPVA), the Bangko Sentral ng Pilipinas (BSP).

The sale was expected to ultimately ease the bad loans portfolio of the entire banking system but since the selling entity was not a bank, the BSP said it would not qualify for incentives under the program.

BSP Deputy Governor Alberto V. Reyes told reporters that the registry of qualified institutions only covered banks, allowing them certain tax breaks and the staggered booking of losses arising from the sale of bad loans.

Being a public housing institution, however, Reyes said the NHMFC would not be able to take advantage of the same incentives that banks were entitled to.

However, since NHMFC has conduit banks and financial institutions that participated in its housing projects, the sale of the bad loans would help lower the non-performing housing loans in their portfolio.

NHMFC still has to complete the sale of the portfolio after the failure of its first attempt to bid it out last February, with investors expressing reservations on the structure of the asset management company that would take over the portfolio.

The much-anticipated auction for the housing loan portfolio of the NHMFC would have been the first of its kind and would have taken off a significant portion of the banking industry’s non-performing loans (NPL).

Officials disclosed after the closed-door proceedings that the bidders had opposed the government’s insistence at retaining control over the decision-making process of the new entity that would take over the bad loans once it is awarded after the bidding.

The NHMFC was assisted by Earnst & Young, the appointed financial advisor that packaged the portfolio for eventual sale under the SPVA.

The transaction would have qualified for incentives under the law including tax breaks and staggered booking of losses over a period of 10 years.

NHMFC said it was forced to disqualify the bids because the documents were not signed by the bidders because of their respective reservations on several major points in the scheme.

According to NHMFC, the main point of contention was the proposed ownership structure of the AMC where NHMFC demanded continued protection by exercising significant control over the decision-making process.

Under the SPVA, the selling institution was allowed to own only up to five percent of the AMC that would take over the bad loans but since NHMFC was not covered, it wanted to own up to 25 percent of the AMC that would be created once the sale is completed.

After the failure of the first auction, NHMFC said another bidding would be scheduled before the May 10 elections, possibly at the end of April.