By Lee C. Chipongian
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno yesterday reiterated his support for bills that will shield banks from threats of collapse but also for the market confidence-boosting Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).
Diokno, who has asked members of the House of Representatives to not weaken the banking sector with “many proposals” of which some may not be helpful to banks and other financial institutions, is also supportive from the beginning of the Financial Institutions Strategic Transfer or FIST bill and the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery or GUIDE bill.
“BSP supports the FIST and GUIDE bills,” said Diokno. “We were actively engaged in their formulation.”
“I also support the CREATE bill,” he added, or “the improved version of CITIRA (Corporate Income Tax and Incentives Rationalization Act)” which has been revised.
The CREATE bill is a stimulus package that will provide immediate relief to business sectors or industries directly hit by the stalled economy during the lockdown due to COVID-19.
“We need the CREATE bill to further enhance the attractiveness of the Philippines as an investment destination post-coronavirus pandemic,” said Diokno. “It will reduce the uncertainty associated with the non-passage of the CITIRA bill or its variant.”
Diokno said the pandemic lockdowns resulted to many banks and businesses adjusting operations and the “changes in capacity to pay off creditors” affected balance sheets and employment. Since businesses are interlinked, he said these could have “significant financial stability implications.”
The country’s biggest business groups have lent their own support for the CREATE bill, particularly the reduction of the corporate income tax (CIT) rate to 25 percent from 30 percent next month, and to further reduce CIT by one percentage point per year from 2023 to 2027 or until it reaches 20 percent.
Diokno said on Monday that banks have an important role in the Philippines’ recovery programs after COVID-19 and that “Congress should not weaken them” because “banks will play a pivotal role in the post-coronavirus recovery process.”
But the pandemic hit various industries where banks “may have substantial exposures to,” Diokno said recently in an online forum. “As the economy gradually moves beyond quarantine, the amplification of strains in the whole financial system have yet to be revealed.”
While he remains confident that the local banking system is strong and resilient, there’s a possibility of higher defaults and an increase in non-performing loans after banks suspended loan payments while on lockdown.
Diokno said there could scope for more debt restructuring measures.
As such the FIST Law, he explained, is a measure that “seeks to reinstate time-bound fiscal incentives for relieving the balance sheets of banking institutions of soured loans that may impair lending to the productive sectors of the economy” and therefore crucial to any recovery processes.
The GUIDE bill, in the meantime, involves the increase in the loan guarantees for micro, small and medium enterprises (MSMEs), and also mandates the two biggest government banks – Land Bank of the Philippines and the Development Bank of the Philippines – to expand loans to MSMEs.