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AMC law useful if banks encounter worst-case NPL scenario — Diokno

amc law useful if banks encounter worst case npl scenario diokno 816x445 - AMC law useful if banks encounter worst-case NPL scenario — Diokno

A BILL PROPOSING the transfer of banks’ bad loans to asset management companies (AMCs) will come in handy should the financial sector’s position deteriorate further, but for now non-performing loan (NPL) levels remain low, the central bank said.

The proposed Financial Institutions Strategic Transfer (FIST) Law will come into play as a safeguard for the financial system, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

“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 in an online chat with reporters Thursday.

With the industry’s non-performing assets (NPAs) 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.

“It’s better to have this law enacted… when we need it we will have it rather than… having to go to Congress” when the emergency worsens, he said.

House Bill No. 6622 or FIST was approved by the Committee on banks and financial intermediaries on May 11. It lays down the framework for banks to transfer non-performing loans to AMCs, keeping bank balance sheets healthy and allowing them to lend more.

Under the proposed bill, such NPAs, which consist of bad loans and real and other properties acquired (ROPA) in settlement of loans and receivables, will be sold to AMCs, known under the law as FIST corporations.

Mr. Diokno said the bill permits FIST corporations to be state-owned or private, with their corporate terms time-bound.

He said FIST will particularly address problems that may arise at big firms as the BSP has implemented a variety of relief measures to address banks’ exposure to small and medium-sized enterprises.

Meanwhile, Mr. Malimban said the bill is flexible enough to accommodate some concerns that could be raised by FIST corporations as the Finance Secretary has the authority to adjust incentives and corporate terms.

“(The Secretary of Finance) is given the authority to extend the period when you can avail of tax incentives. Also, the Secretary can extend the (corporate term),” Mr. Malimban said.

Finance Secretary Carlos G. Dominguez III has said the Department of Finance supports the bill and is willing to provide fiscal incentives for AMCs but it is still studying the magnitude of the NPL problem in the wake of the crisis.

National Economic Development Authority Acting Secretary Karl Kendrick T. Chua has said that President Rodrigo R. Duterte will likely certify the bill as urgent.

“We are assuming the worst. But as I said, we have prepared (banks) well. We’re very confident that this will no be as bad as what happened in the Asian Financial crisis because at that time we were unprepared,” Mr. Diokno said. — Luz Wendy T. Noble

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