MANILA - President Rodrigo Duterte on Monday called on lawmakers to pass a bill allowing banks to dispose of bad loans by transferring them to asset management companies.

In his 5th State of the Nation Address, Duterte called for the passage of the Financial Institutions Strategic Transfer (FIRST) Act authored by Sen. Imee Marcos.

The proposal, Duterte said, will “allow banks to dispose of and transfer non-performing assets and non-performing loans (NPL) to asset management companies similar to special purpose vehicles.”

The measure is meant to ensure that banks remain liquid in times of crisis such as the COVID-19 pandemic.

The number of bad loans, or borrowings which are unlikely to be repaid or repaid on time, is expected to rise as many businesses shut down or scale down their operations due to the COVID-19 crisis.

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The Bangko Sentral ng Pilipinas earlier reported that the COVID-19 pandemic could push the amount of bad loans shouldered by banks to P556.6 billion this year, equivalent to 5 percent in NPL ratio.

BSP Governor Benjamin Diokno however said that Philippine banks can withstand this as they are well-capitalized.