MANILA - Philippine banks which were badly affected by the COVID-19 pandemic will get a much-needed boost from the implementation of the Financial Institutions Strategic Transfer (FIST) Act, which will let them offload billions of pesos of bad debts.
The Bangko Sentral ng Pilipinas, along with the Securities and Exchange Commission (SEC), the Department of Finance (DOF), the Bureau of Internal Revenue (BIR), and Land Registration Authority (LRA), today issued the Implementing Rules and Regulations (IRR) of Republic Act No. 11523, or the FIST Act.
The IRR, which takes effect after its publication on March 29, allows for the establishment of corporations that will invest in or acquire bad debts or non-performing assets (NPAs) of covered financial institutions within a period of two years. Banks that avail will get tax exemptions and fee privileges.
"We expect the reduction in NPL (non-performing loans) ratio to happen during the first two years of the effectivity of the FIST Act, when the tax exemptions and FIST privileges may be availed by financial institutions," said BSP governor Benjamin Diokno in a virtual briefing.
"So this two-year deadline dictates a great sense of urgency and so the parties concerned should be decisive," he added.
Diokno said, based on their conservative estimates, they expect 30 percent of the total non-performing assets held by banks to be disposed of through asset management companies that would be established under the law while the total non-performing loans of banks is seen to be reduced by 0.63 to 0.71 percentage points.
As of December 31 last year, Philippine banks reported P508 billion in bad loans.
"This will also free up liquidity for lending to productive sectors, which is crucial to economic recovery amid the COVID-19 pandemic," Diokno noted.
BSP Deputy Director Noel Neil Malimban, meanwhile, said banks have expressed interest in availing of the perks under the new law.
"We have no formal report on those wishing to establish FIST corporations, however, there have been several communications from financial institutions who are very interested in the application of the FIST Act," Malimban said.
To further encourage BSP-supervised financial institutions to avail of the law, Diokno said, they've also simplified the procedures for application of eligibility of non-performing assets.
Local lenders have reported of a steep spike in their provisions for bad loans as the COVID-19 pandemic affected some of their borrowers.
This has hurt the profitability of most banks in the country as they reported a drop in net income in 2020.
While the BSP has kept its policy rate at a record low and cut banks' reserve requirements by 200 basis points since last year, banks have been reluctant to lend after accumulating bad debts last year following the disruptions caused by the pandemic.
FIST is seen to boost bank lending again by letting them offload bad debts.