Sen. Imee R. Marcos has filed a bill paving the way for State-run and private financial institutions to sell their “toxic” non-performing assets more easily amid the COVID-19 pandemic to help government raise more funds and keep businesses afloat.
The Marcos measure, Senate Bill 1646, or the Financial Institutions Strategic Transfer (FIST) Act, seeks to create specialized asset-managing corporations that would clean up the balance sheets of lending institutions by acquiring their bad loans and stagnant properties.
"Unpaid loans and other non-performing assets are the virus infecting the country’s financial system and will test its resilience in the coming months,” Marcos said.
Marcos, chairwoman of the Senate Committee on Economic Affairs, warned that the pandemic would make it harder for borrowers to pay back and would likely increase the bulk of non-performing assets in government financial institutions, private banks, investment houses, and other credit-granting entities.
Similar to the Special Purpose Vehicles (SPVs) created in the wake of the 1997 Asian financial crisis, the FIST corporations proposed in the Marcos bill would specifically address the COVID-19 pandemic’s threat to the economy.
“The financial relief strategy back then was able to lower the ratio of bad loans to total loans from 14.6 percent in 2001 to 5.1 percent in 2005. Liquidity was created in the hundreds of billions,” Marcos said.
"Greater liquidity means banks and other financial institutions will be able to lend more to keep businesses in operation,” she explained.
“Also, we need more than the P140 billion that our economic managers have allotted for the government’s second stimulus package. Creating FIST corporations will help government raise revenue to respond to the pandemic,” she added.
Tax privileges and fee exemptions to be given to FIST corporations aim to encourage their creation at a time of increased financial risk.
Among banks alone, the amount of non-performing loans may increase in the coming months from the present five percent to as high as 20 percent of total loans, as projected by the Bankers Association of the Philippines.
“Let’s not be complacent and plan for the months ahead. While the government has so far managed to keep the peso steady against the dollar with a strong balance of payments and international reserves, how long will this last if local businesses and exports remain weak?” Marcos asked.
“The spike in COVID-19 cases is shocking us each day and our hospitals are starting to fret about their capacities,” Marcos added, citing that University of the Philippines (UP) researchers have just revised their case projection upward from 60,000 to 75,000 by the end of July.