FIST attracts 4 banks to offload bad assets

MANILA, Philippines — There are few takers for a law that allows banks to offload bad loans even at substantial discount to ensure a sound and safe financial system as the industry recovers from the impact of the pandemic, according to the Bangko Sentral ng Pilipinas.

BSP deputy director Richie Suguitan told members of the Senate committee on banks, financial institutions and currencies on Tuesday that the regulator has so far issued Certificate of Eligibility (COE) to four banks and financial institutions under Republic Act 11523 or the Financial Institutions Strategic Transfer (FIST) Act.

Suguitan said the BSP has issued final master list applications to seven of the 15 banks that have pending applications with the central bank.

Under the guidelines, banks and financial institutions should first accomplish a master list of eligible non-performing assets before applying for a COE. A final master list, which could be initial or updated, should include their eligible NPAs on or before a quarter-ended reference date and should be submitted to the central bank after two to three months.

A COE will be issued by the BSP to prove the eligibility of NPAs for the availment of tax exemptions and privileges under the FIST Law. These NPAs include non-performing loans (NPLs) as well as real and other properties acquired (ROPA) of BSP-supervised financial institutions.

NPLs or bad debts refer to past due loan accounts where the principal or interest is unpaid for 30 days or more after due date. A high NPL ratio indicates weakness in the financial system and poor state of the economy.

Latest data from the central bank showed that the NPL ratio of Philippine banks improved to a 21-month low of 3.6 percent in June from 3.75 percent in May. This was the lowest since the 3.51 percent recorded in September 2020.

The BSP is expecting banks to offload about P152 billion in bad assets under the FIST law. It said this action is expected to reduce the NPL ratio of Philippine banks by 0.63 to 0.71 percent.

The new law is similar to Republic Act 9182 or the Special Purpose Vehicle Act of 2002 which allowed the establishment and registration of special purpose vehicles to acquire non-performing assets and dispose them in the markets after the Asian financial crisis in 1997 and 1998.

The previous law allowed banks to dispose 30 percent of their NPAs under the SPV law. which was passed four years after the Asian financial crisis.

There were six FIST corporations registered with the Securities and Exchange Commission (SEC) as of Mach, namely the Philippine Equitable Recovery I FIST-AMC, Argo Global Servicing Philippines (FIST-AMC) Inc., Philippine Recovery Company I FISTC-AMC Inc., Resurgent Capital (FIST-AMC) Inc., Collectus FIST-AMC (Ph) Private Limited Corp., and PI One FISTC-AMC Corp.