By Genshen L. Espedido, Reporter

THE House of Representatives on Thursday evening approved on second reading a bill providing for the transfer of banks’ bad loans to asset management companies (AMCs), as a spike in non-performing loans is expected during the coronavirus crisis.

“We cannot afford a banking industry that has become anemic. That is the first thing that we must avoid as an economy. When we have a banking industry that responds to the credit requirements of our businesses, we need a healthy banking industry. At the end of the day, a vibrant, health financial sector is what we need if we are aspiring for a speedy economic recovery,” Quirino Rep. and House committee on banks and financial intermediaries chair Junie E. Cua said during the plenary session on Thursday.

House Bill 6816 or Financial Institutions Strategic Transfer (FIST) bill is aimed at encouraging financial institutions to sell non-performing assets (NPAs) to AMCs that specialize in handling distressed assets.

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

The transfer of non-performing assets from a financial institution to an AMC, and from an AMC to a third party will be exempt from documentary stamp tax, capital gains tax, creditable withholding income tax and value-added tax.

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

The 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.

Only the Court of Appeals and the Supreme Court are empowered to issue injunctions against the transfer of NPAs.

AMCs will be required to set up consumer protection mechanisms “as may be prescribed in the IRR issued by the appropriate regulatory authority.”

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

Mr. Cua included an amendment which states that any fraud, collusion or irregularity committed during the transfer of NPAs will be subject to penalties and other pertinent laws and regulations.

“In the transfer of NPAs, the parties shall exercise the requisite due diligence and any fraud, collusion or irregularity shall be subject to Section 24 of this Act as well as other pertinent laws, rules, and regulations,” he said.

Under Section 24 of the bill, violators face a maximum of P2 million fine and/or imprisonment of not more than 12 years.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno on May 21 said that the proposed FIST Act will serve as a safeguard for the financial system.

“I guess it’s better to have it now in anticipation of what might happen if things deteriorate. But at the moment, NPLs (non-performing loans are) very low… But we don’t know whether this pandemic will persist,” Mr. Diokno said.

With the industry’s non-performing assets currently at 2.1%, banks are already factoring in a likely increase in bad loans, according to Noel Neil Q. Malimban, deputy director at the BSP Office of General Counsel and Legal Services.

Meanwhile, House Bill 6768 or the Financial Products and Services Consumer Protection Act which gives financial regulators rulemaking, surveillance and inspection, market monitoring, and enforcement powers relative to consumer protection was also passed on second reading.

RELATED ARTICLESMORE FROM AUTHOR