PRESIDENT Rodrigo R. Duterte on Tuesday signed the law allowing financial institutions to sell bad loans to asset management companies, according to Finance Secretary Carlos G. Dominguez III.

Republic Act No. 11523, otherwise known as the Financial Institutions Strategic Transfer (FIST) Act, creates specialized asset management firms that would acquire nonperforming assets from distressed financial institutions.

The law will take effect immediately after it is published in the Official Gazette and a newspaper of general circulation.

In December, Congress ratified the Bicameral Conference Committee report that reconciled Senate Bill No. 1849 and House Bill No. 6816.

The bill is one of the measures certified as urgent by Mr. Duterte.

Under FIST, there will be a mechanism that will allow banks or lending companies to monetize bad loans.

According to the central bank, the banking industry’s nonperforming loan (NPL) ratio reached 3.61% as of end-December. NPLs increased 74.8% to P391.657 billion by end-2020, from P224.1 billion in 2019.

The bill, seen as an improved version of the Special Purpose Vehicle Act of 2002 that was enacted in response to the Asian Financial Crisis, now covers lending companies and other institutions licensed by the Bangko Sentral ng Pilipinas. — Kyle Aristophere T. Atienza