THE ENACTMENT of the Financial Institutions Strategic Transfer (FIST) Act is urgently needed by the banking industry, as most bank relief measures are only applicable until the end of 2021.

“The FIST Act complements the BSP’s (Bangko Sentral ng Pilipinas) temporary relief measures which are mostly in effect until end-December 2021. The BSP will continue to monitor the impact of these relief measures on banks’ financial condition and calibrate the same, if necessary,” BSP Deputy Governor Chuchi G. Fonacier said in a text message to BusinessWorld.

Ratified by Congress in December, the FIST measure is now awaiting President Rodrigo R. Duterte’s signature.

The FIST measure was transmitted to Malacañang in the last week of January, according to Presidential Spokesperson Heminio “Harry” L. Roque, Jr.

“The FIST Act aims to reinforce banks’ capital and liquidity position in the long-term by allowing financial institutions to dispose of their nonperforming assets, increase their risk-bearing capacity, and enhance their capability to provide financial services to productive sectors of the economy,” Ms. Fonacier said.

The banking industry’s bad loan ratio reached 3.61% as of end-December. Non-performing loans (NPLs) increased 74.8% to P391.657 billion by end-2020, from P224.1 billion a year prior.

The BSP last year allowed loans that should already have fallen under the nonperforming and past due classification from March 8 to the succeeding six months to be excluded from the categories until Dec. 31, 2021.

The relaxed credit risk weight for loans to micro-, small-, and medium-sized enterprises is also in effect until end-2021.

Meanwhile, lenders are also given the leeway to book allowance for credit losses over a period of five years and to implement a higher single borrower’s limit of 30% (from 25%) until end-March.

“Banks have also continued to adopt a prudent stance by increasing their loan loss provisioning in anticipation of a rise in their NPLs,” Ms. Fonacier said.

Allowance for credit losses booked by banks surged 77% year on year to P367.094 billion. The industry’s NPL coverage ratio, which shows the allowance for potential losses due to bad loans, rose to 93.73% as of end-2020 from 92.59% as of end-2019.

As banks tighten credit standards and borrowers’ confidence remain weak, lending in December declined 0.7% year on year — the first drop in over 14 years that followed the already meager 0.5% credit expansion in November.

The industry-wide bad loan ratio reached its peak of 17.6% in 2002 in the aftermath of the Asian Financial Crisis.

“Compared with the Asian Financial Crisis, Philippine banks today are better placed in terms of capitalization and loan loss coverage to withstand rising problem loans, but we expect NPL ratios will remain elevated until the Philippine economy turns around,” Joyce Ong, an analyst at the Financial Institutions Group of Moody’s Investors Service said in an e-mail.

The Special Purpose Vehicle Act which helped banks to get rid of nonperforming assets was only passed in 2002, already five years after the 1997 currency crisis in Asia.

BSP Governor Benjamin E. Diokno has earlier said the FIST is only a “fallback position” and said the banking industry can handle the crisis given its adequacy ratio hovers around the 15% territory, which is well beyond the 10% requirement set by the central bank. — Luz Wendy T. Noble

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