By Victoria “NIKE” De Dios
After the much-needed approval of the bill that would help would cushion banks and credit-granting institutions from the build-up of bad loans due to the COVID19 pandemic, Finance Secretary Carlos Dominguez III has thanked Congress for its swift and timely passage of the Financial Institutions Strategic Transfer (FIST) Act, a law recently signed by President Duterte that allows financial institutions to efficiently offload their bad loans and non-performing assets amid the COVID-19-induced global economic slump.
“We thank our lawmakers for acting quickly in passing the FIST bill, which was signed into law by the President on February 16, 2021. The bill was passed within the first year of the pandemic, making it an effective measure in ensuring the stability of our financial system amid the global health and financial crises. The FIST law will allow banks to free up much-needed liquidity for lending to the productive sectors of our economy that are crucial to our recovery,” Dominguez said.
Dominguez said the enactment of Republic Act (RA) No. 11523, otherwise known as the FIST Act, will assist the banking system in performing its crucial role of efficiently mobilizing savings and investments for the country’s quick and sustainable economic recovery by extending more loans to micro, small and medium enterprises (MSMEs) badly hit by the global economic turmoil unleashed by the coronavirus pandemic.
“This FIST law is part of the stimulus package of the Duterte administration to energize the domestic economy and guide it to a quick and sustainable recovery from the lingering coronavirus pandemic,” Dominguez said.
Dominguez cited the able leadership of Senate President Vicente Sotto III and Speaker Lord Allan Velasco who both steered the swift passage of the measure in their respective chambers in the 18th Congress.
He also thanked Senate Majority Leader Juan Miguel Zubiri; House Majority Leader Ferdinand Martin Romualdez; Senator Grace Poe, the Chairperson of the Senate Committee on Banks, Financial Institutions and Currencies; and Quirino Representative Junie Cua, the Chairman of the House Committee on Banks and Financial Intermediaries, for getting the bill passed and ratified quickly by the bicameral legislature.
The FIST bill, similar to the Special Purpose Vehicles (SPV) law of 2002, was certified as urgent by President Duterte last October 2020.
Dominguez said the swift congressional approval of the FIST bill would help more banks and other financial institutions facing delayed loan collections drastically reduce their growing non-performing loan (NPL) ratio—unlike when the SPV Law was enacted five years after the Asian financial crisis struck in 1997.
He recalled that while the banking system entered the 1997 crisis with strong fundamentals, the delayed passage of the SPV Law led to the deterioration of the quality of its assets, with the NPL ratio of the local banking system peaking in June 2002 at 20.05 percent from only 4.7% in December 1997.
In contrast, other countries of the Association of Southeast Asian Nations (ASEAN) were able to aggressively implement programs to aid their respective banking systems as early as 1997 or 1998.
On top of bank recapitalization programs, asset management companies similar to SPVs were established to help pull down the amount of bad loans in the banking systems of South Korea, Malaysia, Thailand, and Indonesia.
“Faced with a mild banking problem, the Philippines did not implement any government initiative to bail out the banking sector until 2002, with the enactment of the SPV Law. While this law helped banks lower their NPL ratio over time, the law’s positive impact on our financial system had already been diluted because of its delayed congressional passage and enactment into law,” Dominguez said.
“Thus, credit must be given to the hardworking members of our Congress today, and to the President for acting fast in signing the FIST law, as this measure is crucial to realizing our goal of a quick, robust, and sustainable recovery for our economy,” Dominguez said.
According to estimates of the National Economic and Development Authority (NEDA), the FIST law can possibly free up P1.19 trillion-worth of loans from the sale by banks of their non-performing assets (NPAs) to asset management companies to be known as FIST corporations (FISTCs).
To encourage FISTCs to acquire the banks’ soured loans and NPAs, the new law provides for tax exemptions and lower fees on certain FIST-related transactions.
By helping banks keep their lending operations strong, the measure also aims to assist about 600,000 MSMEs in continuing their operations and retaining around 3.5 million jobs.
There are signs that the banking system has remained resilient despite the COVID-19 pandemic. Despite initial industry fears that the NPL ratio of banks by end-December 2020 would increase to 5.0 percent or an equivalent of P556.6 billion in NPLs, actual data from the Bangko Sentral ng Pilipinas showed the ratio to have eased to 3.61 percent, or P391.7 billion. Banks further expect 50 percent to 80 percent in expected losses on such NPLs. Non-performing asset (NPA) coverage also remains strong at 78.95 percent.
Still, while such losses can still be absorbed by the banking system’s capital buffer, this would lead to a deterioration in the banks’ loan portfolio if left unchecked, and severely affect their solvency in the long-term. The enactment of the law will also improve the management of banks’ distressed asset ratio, which has increased to 6.19 percent in December 2020 from 3.35 in January 2020.
President Duterte earlier certified the FIST Act as urgent that allowed its swift passage. In the certification, President Duterte noted that the FIST bill will “strengthen financial initiatives towards national economy recovery and maintain the stability of the financial sector amidst the COVID-19.”
Dominguez urged the Congress to also pass this year the remaining packages of the Duterte administration’s comprehensive tax reform program—the reforms in the real property valuation system and the proposed Passive Income and Financial Intermediary Act (PIFITA)—as well as the remaining economic recovery legislation, the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill.