A measure allowing financial institutions to sell bad loans to asset management companies has been filed in the Senate as banks anticipate a rise in nonperforming assets.
Under Senate Bill No. 1594, the “Financial Institutions Strategic Transfer Act,” Senator Imee R. Marcos provided for the transfer of bad loans to free up banking systems and pave way to more lending activities.
“There is a need for the State to enact measures for banks and other financial institutions to offload their NPAs,” Ms. Marcos, who chairs the economic affairs committee, said in the explanatory note of the bill.
Citing the Bankers Association of the Philippines, she said nonperforming asset ratios can rise to 20% in a matter of months from the expected 5% today.
“High NPA ratios affect the ability of banks to provide financial intermediation services through both capital losses and management/administration losses,” she said.
The proposal is among the measures the Department of Finance had submitted initially as an amendment to the Bayanihan 2 bill. Senator Juan Edgardo M. Angara, finance committee chair, however recommended tackling it in a separate bill.
The House of Representatives, for its part, approved its version under House Bill No. 6816 on final reading ahead of the June 5 adjournment.
The measure is similar to the Special Purpose Vehicle Law enacted in 2002 in the wake of the Asian financial crisis.
“The financial relief strategy back then was able to lower the ratio of bad loans to total loans from 14.6% in 2001 to 5.1% in 2005. Liquidity was created in the hundreds of billions,” Ms. Marcos said in a statement.
“Greater liquidity means banks and other financial institutions will be able to lend more to keep businesses in operation.”
Under the bill, financial institutions can sell their nonperforming assets, which may be nonperforming loans or real and other properties acquired, to Financial Institution Strategic Transfer Corporations.
The corporation may, in the case of nonperforming loans, restructure or condone debt, among other restructuring activities.
The bill also provides that transfers of NPAs are exempt from documentary stamp tax, capital gains tax, value-added tax and creditable withholding income tax. — Charmaine A. Tadalan