Banks sell P32-B bad assets under SPVA

Despite heavy penalties on bad assets still in their portfolio, banks remained slow to clean up their folders even with the incentives offered under the Special Purpose Vehicles Act (SPVA).

The Bangko Sentral ng Pilipinas (BSP) reported over the weekend that as of end-June this year, the banking sector has unloaded about P32 billion worth of bad assets under the extended SPVA.

According to the BSP’s report on the Philippine financial system, this year’s figure  brought the total of bad assets unloaded through SPV-related transactions to P128.7 billion.

This was equivalent to 24.7 percent of the P520 billion worth of non-performing assets (NPAs) recorded as of end-June 2002 when the law was promulgated.

The extended SPVA  is expected to spur the disposition of about P82 billion worth of bad assets, significantly less than the P100-billion target of the BSP.

At the end of the first semester, with P32 billion worth of transactions already qualified for SPVA incentives, the BSP said a total of P82 billion were lined up for disposition, about P18 billion less than expected.

Under the original SPVA, the BSP said banks disposed of about P96.7 billion worth of bad assets, representing about 19 percent of total NPAs that are eligible for sale with incentives.

The BSP had conducted a survey of banks where they were asked exactly how much NPAs they intend to unload under the SPVA this year. These were assets that have been earmarked for unloading though not applied for incentives.

Despite criticisms, however, the BSP said it is more than satisfied with the progress being made by banks in cleaning up their loan portfolio while under pressure to build up capital.

The BSP said it was understandable for Philippine banks to take longer to recover from the 1997 Asian crisis especially since, unlike other countries, the government did not take a direct hand in rescuing the banking industry.

The BSP also noted a growing preference among banks to set their bad assets aside for joint ventures instead of selling them outright which they felt was less profitable even with incentives.

According to the BSP, the upside in the property sector was giving banks the rare opportunity to turn these assets around instead of selling them at a loss to asset management companies.

Since it allowed banks to form joint ventures with property firms, the BSP has so far approved two major joint ventures between banks and property development firms worth P2.5 billion. Similar transactions worth P3.5 billion are pending for approval.

According to BSP Deputy Governor Nestor Espenilla Jr., the BSP expects an increase in these joint ventures as banks move to take advantage of opening opportunities in the real estate market.

“Banks are less inclined to take a discount and more inclined to take advantage of the upside in the real estate sector,” he said.

Despite the expected surge, however, Espenilla said the BSP is not inclined to ease its restrictions on these joint ventures and banks would still be limited to participate only as owners of the properties to be developed.

“That’s their equity in these ventures and they are not going to be allowed to go beyond that,” Espenilla said. “The whole idea is for banks to concentrate on the business of banking, not property development.”

According to Espenilla, these restrictions would also keep banks insulated from any upheavals that might develop similar to the imploding asset bubble that led up to the 1997 Asian financial crisis.