MANILA - The Bangko Sentral ng Pilipinas (BSP) on Wednesday told senators it is backing a bill that seeks to allow banks to offload their bad loans to asset management companies.

BSP Governor Benjamin Diokno said the proposed Financial Institutions Strategic Transfer (FIST) Act “will assist the financial system perform its role efficiently, mobilizing savings and investments for the country’s economic recovery as well as its sustained growth and development.”

Diokno told an online hearing of the Senate Committee on Banks, Financial Institutions and Currencies that while banks have “built in buffers” to absorb losses on their exposures and continue lending, there was a limit to the risks they could bear.

“Hence the establishment of resolution frameworks such as the FIST law will ensure that distressed financial institutions have a mechanism to strengthen their balance sheet,” Diokno said.

FIST will grant tax incentives to asset management companies to defray the transaction and transfer costs of non-performing assets.

The Department of Finance, which has been batting for the swift approval of FIST, said the measure will allow banks to focus on their primary task of lending to sectors in need of credit.

“This benefit cannot be understated in a crisis, when lending to businesses is riskier but also more urgently needed,” Diokno said.

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

The BSP has cut interest rates to a record low this year and reduced banks’ reserve requirements to encourage banks to lend more money to businesses and consumers, to stimulate the economy.