SPAV bill overlooked rural banks – RBAP

The rural banking sector is asking Congress to include bigger tax breaks to business groups interested in acquiring their bad assets in the proposed special purpose asset vehicle (SPAV) bill.

However, rural bankers welcome the SPAV bill as it is perceived to help alleviate the entire banking industry from the burden of disposing of its bad debts.

Unofficial estimates indicate that the entire banking industry’s non-performing loans (NPLs) is more than 18 percent last year from the 15 percent the year before.

The commercial banking sector is said to have non-performing assets (NPAs) worth P1 trillion divided into roughly P350 billion in real and other properties owned or acquired (ROPOA), and P750 billion in NPLs.

Lately, the Bangko Sentral ng Pilipinas (BSP) reported that the rural banking sector’s NPL ratio to its total loan portfolio reached 15.02 percent from 17.36 percent the previous year.

"Despite the improvement in the sector’s NPL ratio, rural bankers still need a special vehicle that would reduce its bad assets," said Manuel Guina, chief operating officer of the Rural Bankers Association of the Philippines (RBAP).

Guina said that the capital adequacy of rural banks could be greatly improved with the eradication of their NPAs. That is if a third party or an asset management company (AMC) would acquire its bad assets.

Under the proposed SPAV bill, an AMC must have a minimum authorized capital of P62.5 million and a paid-up capital of P6.7 million.

What the rural bankers are asking for is better terms for AMCs dealing with the rural banking sector. That means lower capitalization requirements, lower documentary stamp taxes (DST), less or no taxes on interest earned from deposits, lower or no corporate income tax, and more than seven years grace period for the SPAV.

That would allow not only foreign AMCs but most especially domestic companies looking to buy the bad assets of the sector.

"What we are asking for is bigger tax breaks to allow more players," Guina said.

Earlier, global financial institution Deutsche Bank expressed strong concern over the high NPL condition of Philippine banks as a strong depressant to strong economic recovery. NPLs was registered at over 18.0 percent at the end of 2001.

Most bank executives however admit that the real level of NPLs in the entire banking system is over 20 percent.

"Asian banks are still burden by NPLs, weak legal system, and are not responding to lower interest rates by extending new credit. The Philippine banking system has looked more lively than most over the past 18 months but rising NPLs suggest problems may lie ahead," Deutsche Bank said.

They said that the NPLs could rise way above 20 percent bouyed by several major banks’ NPLs accounting for over 40 percent of bad loans.

"The cost of re-capitalizing the banking system should be about two percent of GDP," the bank said. "But the private sector should finance the restructuring without government funding."

The RBAP nonetheless sees a modest eight percent growth this year even without the passage of the SPAV bill.

The 782 rural banks are estimated to have grown by a conservative single digit in terms of asset growth.

The rural banking sector’s acquired assets resulting from the foreclosure of collateral for loans went up by 1.5 percent.