By Angela Celis and Irma Isip
The swift enactment Financial Institutions Strategic Transfer (FIST) Act which allows financial institutions to efficiently offload their bad loans and non-performing assets is the stimulus the economy needs to bounce back from the coronavirus disease 2019 (COVID-19)-induced global economic slump.
Finance Secretary Carlos Dominguez in a statement expressed gratitude to lawmakers for acting quickly in passing the FIST bill, which was signed into law by the President on Feb. 16, 2021. “The bill was passed within the first year of the pandemic, making it an effective measure in ensuring the stability of our financial system amid the global health and financial crises,” Dominguez said.
He said the enactment of Republic Act No. 11523, otherwise known as the FIST Act, will assist the banking system in performing its crucial role of efficiently mobilizing savings and investments for the country’s quick and sustainable economic recovery by extending more loans to micro, small and medium enterprises (MSMEs) badly hit by the global economic turmoil unleashed by the coronavirus pandemic.
Business leaders also welcomed the timely enactment of the law.
Dominguez said the swift passage of FIST would help more banks and other financial institutions facing delayed loan collections drastically reduce their growing non-performing loan (NPL) ratio–unlike when the Special Purpose Vehicles (SPV) Law was enacted five years after the Asian financial crisis struck in 1997.
He recalled that while the banking system entered the 1997 crisis with strong fundamentals, the delayed passage of the SPV Law led to the deterioration of the quality of its assets, with the NPL ratio of the local banking system peaking in June 2002 at 20.05 percent from only 4.7 percent in December 1997.
In contrast, other Asean countries were able to aggressively implement programs to aid their respective banking systems as early as 1997 or 1998.
On top of bank recapitalization programs, asset management companies similar to SPVs were established to help pull down the amount of bad loans in the banking systems of South Korea, Malaysia, Thailand, and Indonesia.
“Faced with a mild banking problem, the Philippines did not implement any government initiative to bail out the banking sector until 2002, with the enactment of the SPV Law.
While this law helped banks lower their NPL ratio over time, the law’s positive impact on our financial system had already been diluted because of its delayed congressional passage and enactment into law,” Dominguez said.
According to estimates of the National Economic and Development Authority, the FIST law can possibly free up P1.19 trillion-worth of loans from the sale by banks of their non-performing assets (NPAs) to asset management companies to be known as FIST corporations (FISTCs).
To encourage FISTCs to acquire the banks’ soured loans and NPAs, the new law provides for tax exemptions and lower fees on certain FIST-related transactions.
By helping banks keep their lending operations strong, the measure also aims to assist about 600,000 MSMEs in continuing their operations and retaining around 3.5 million jobs.
The DOF said the banking system has remained resilient despite the COVID-19 pandemic.
Despite initial industry fears that the NPL ratio of banks by end-December 2020 would increase to five percent or an equivalent of P556.6 billion in NPLs, actual data from the Bangko Sentral ng Pilipinas showed the ratio to have eased to 3.61 percent, or P391.7 billion. Banks further expect 50 percent to 80 percent in expected losses on such NPLs. NPA coverage also remains strong at 78.95 percent.
The DOF said while such losses can still be absorbed by the banking system’s capital buffer, this would lead to a deterioration in the banks’ loan portfolio if left unchecked, and severely affect their solvency in the long-term.
The enactment of the law will also improve the management of banks’ distressed asset ratio, which has increased to 6.19 percent in December 2020 from 3.35 in January 2020, the agency added.
Meanwhile, the Philippine Chamber of Commerce and Industry (PCCI) said the enactment of the FIST Act will be a big boost to financially-strapped businesses due to the pandemic.
“The FIST law will not only clear banks of bad loans but also improve their liquidity, enabling them to help rehabilitate distressed businesses and support the economic recovery,” said PCCI president Benedicto Yujuico, in a statement yesterday.
Yujuico said he agrees with government’s pronouncement FIST is a key component of its plan to recover from the pandemic-induced crisis.
The Bankers Association of the Philippines (BAP) meanwhile said FIST’s timely enactment will further strengthen the role of the financial industry in the economic recovery of the country.
BAP looks forward to the issuance of the Implementing Rules and Regulations that will cover all NPAs and NPLs as of Dec. 31, 2022 as provided by the law.
The Management Association of the Philippines (MAP) for its part said the new law is one of the pillars under the government’s national economic recovery program as it lays down an enabling environment for our banking industry to continue lending to the private sector.
“With this new law and the recently passed CREATE (Corporate Recovery and Tax Incentives for Enterprises) bill, we are hopeful that our economy will get rehabilitated earlier than expected for the sake of our countrymen,” said MAP president Aurelio Montinola III.
