The enactment of the Financial Institutions Strategic Transfer (FIST) law, which is expected to free up over P1 trillion worth of banks’ soured loans and non-performing assets and assist 600,000 micro, small and medium enterprises (MSMEs), will ensure the stability of the local financial system amid the global economic downturn, the Department of Finance (DOF) said.
In a statement, Finance Secretary Carlos G. Dominguez III said that signing FIST into law within the first year of the pandemic will allow banks to free up much-needed liquidity for lending to the productive sectors of the economy.
Dominguez said this lending leeway of banks is crucial to the country’s economic recovery.
According to estimates of the National Economic and Development Authority, the FIST law can possibly free up P1.19 trillion-worth of loans from the sale of banks’ non-performing assets (NPAs) to asset management companies to be known as FIST corporations (FISTCs).
“We thank our lawmakers for acting quickly in passing the FIST bill, which was signed into law by the President on February 16, 2021,” Dominguez said, noting that Senate President Vicente Sotto III and House Speaker Lord Allan Velasco both steered the swift passage of the measure.
“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,” he added.
The FIST bill, similar to the Special Purpose Vehicles (SPV) law of 2002, was certified as urgent by President Duterte last October 2020. SPV law was enacted five years after the Asian financial crisis struck in 1997.
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.
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 percent 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.
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.