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House approves measure allowing transfer of bad loans to asset companies

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PHILSTAR/KRIZ JOHN ROSALES

By Genshen L. Espedido, Reporter

THE House of Representatives on Tuesday evening approved on final reading a bill that provides for the transfer of banks’ bad loans to asset management companies (AMCs), a move seen to bolster the country’s lenders.

With 202 affirmative votes, six negatives and one abstention, the chamber passed House Bill 6816 or Financial Institutions Strategic Transfer (FIST) bill in anticipation of a spike in nonperforming loans (NPLs) as the coronavirus crisis continues.

The bill stated it is necessary to create policies that “not only marshal available resources towards the most affected and vulnerable sectors, but more importantly, to strengthen the financial sector so that economic recovery can be achieved faster.”

Quirino Representative and House Committee on Banks and Financial Intermediaries Chair Junie E. Cua told BusinessWorld on Wednesday that the bill aims to boost banks’ liquidity in order for them to continue issuing loans.

“The purpose is to provide liquidity so that the banks can continue lending. Kasi kapag naipit na lahat ng assets nila sa nonperforming assets, wala na silang ipapautang, mag-cocollapse na ang banking system. Wala na ring makakautang,” he said in a phone interview.

Mr. Cua said they want to prevent a repeat of the 2008 Asian financial crisis where the banking industry saw a sharp rise in NPLs and nonperforming assets (NPAs).

“If you recall nung (2008) Asian crisis, ang NPL at saka NPAs umaakyat ’yan ng 20% ng total loan portfolio. Do you know how much it means? Sa 20% of loan portfolio, if you are talking a P10 trillion of total loan portfolio, 20% is P2 trillion, that is a lot of money. If you tie down that much of money in the banking industry, magiging very liquid ang banking industry. Walang mauutangan ang negosyante, ang maapektuhan negosyo. Ultimately, mga empleyado ang tatamaan,” he added.

Gabriela Party-List Rep. Arlene D. Brosas, who voted to reject the bill, said it will not guarantee protection for small and medium enterprises (SMEs).

Sa halip na magpatupad ng moratorium sa loans para sa small- at medium-scale enterprises, gustong ipwesto ng panukalang ito ang malawakang buy-and-sell ng bad loans at reconcentration ng yaman sa kamay ng malalaking financial institutions. In the process this scheme dangerously socializes financial risks, instead of ensuring financial resiliency. This seeks to revive the Special Purpose Vehicle (SPV), which gained notoriety during the 2008 financial crash for being massive conduits of bad loans,” she told the plenary on Tuesday evening.

Under the proposed FIST, financial institutions can sell NPAs to AMCs that will be known as Financial Institutions Strategic Transfer Corporations (FISTCs) that would specialize in handling distressed assets.

In the case of NPLs, AMCs can restructure debt, condone debt and undertake other restructuring-related activities to dispose of the debt, including to third parties.

The bill also exempts the transfer of NPAs from a financial institution to an AMC, and from an AMC to a third party from the payment of documentary stamp tax, capital gains tax, creditable withholding income tax and value-added tax.

Transfers will also be subject to only 50% of applicable registration and transfer fees, 50% of filing fees on any foreclosure, and 50% of land registration fees. This will be available for up to two years from the date of the effectivity of the bill’s implementing rules and regulations.

The FIST bill also provides that any loss incurred by financial institutions as a result of the transfer of NPAs will be treated as ordinary losses, provided that the accrued interest and penalties will not be included as loss; the carry-over will be subject to pertinent laws; and the tax saving derived by financial institutions from the net operating loss carry-over will not be available for dividend declaration.

The measure also encourages the private sector, government financial institutions, and government-owned and -controlled corporations to incorporate and invest in FISTCs and help in the rehabilitation of distressed businesses “with the end view of contributing to economic growth.”

Under the bill, any fraud, collusion or irregularity committed during the transfer of NPAs will be subject to penalties and other pertinent laws and regulations. Violators will face a maximum of P2-million fine and/or imprisonment of not more than 12 years.

Even though the government badly needs funds for its COVID-19 response, Ms. Brosas said the measure will give fiscal incentives like tax breaks on the transactions of AMCs.

“This bill will also provide FISTCs more power to control bank loans and rental rates, which will eventually force Filipinos to pay higher rental rates in condominium units located in Central Business Units,” she added.

Mr. Cua defended the fiscal incentives provided in the FIST bill, saying these are the “least” the government can do to help the banking sector.

“Well, that is a price that we need to pay because we are trying to encourage them nga to dispose of their assets eh. And under abnormal situations, the government must help by alleviating the situation and that’s the least they can do, not to collect the tax,” he said.

At the same time, the House also approved on third reading two measures, including HB 6768 or the Financial Products and Services Consumer Protection Act which gives financial regulators additional powers to protect consumers.

Also approved was HB 6817, which prohibits discrimination against persons who are declared confirmed, probable and recovered cases of COVID-19, healthcare workers and repatriated Filipinos.

HB 6920 or the COVID-19 Unemployment Reduction Economic Stimulus (CURES) Act of 2020 was passed on second reading. The proposed CURES law calls for a P1.5-trillion spending program over three years to address slowing economic growth and create jobs.





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