The government has issued the Implementing Rules and Regulations (IRR) of Republic Act No. 11523, or the Financial Institutions Strategic Transfer (FIST) Act which will regulate the sale of non-performing assets of banks.
The IRR was issued by the Securities and Exchange Commission (SEC), the Department of Finance (DOF), Bangko Sentral ng Pilipinas (BSP), Bureau of Internal Revenue (BIR), and Land Registration Authority (LRA).
The IRR, which took effect after its publication on March 29, operationalizes the FIST Act that allows for the establishment of corporations to invest or acquire non-performing assets (NPAs) of covered financial institutions (FI).
“The FIST Act is integral to the government's economic recovery program aimed at positioning us back to growth from the setbacks brought about by the COVID-19 pandemic,” SEC Chairperson Emilio B. Aquino said.
He added that, "The Commission has always supported the passage of the FIST Act. With the implementing rules and regulations in place, we are optimistic that the law will serve its purpose of ensuring the resilience and recovery of the financial sector, which in turn will provide the much-needed support for businesses and consumers alike."
Applications for the establishment and registration of a FIST corporation (FISTC) shall be filed with the SEC within 36 months from the FIST Act's effectivity. Those established on the 25th to 36th month cannot avail of the tax incentives unless an amendatory law extending the privileges is passed.
An entity created under Republic Act No. 9182, as amended, or The Special Purpose Vehicle (SPV) Act of 2002, may avail of the privileges and incentives provided under the FIST Act.
Under the law, the following are the covered FIs that may transfer NPAs to FISTCs: BSP, banks, pawnshops, non-stock savings and loan associations (NSSLAs), and non-bank credit card issuers and other credit-granting institutions supervised by the central bank; financing companies, lending companies, and accredited microfinance nongovernment organizations; investment houses; insurance companies; and select government-owned and -controlled corporations (GOCCs) and government financial institutions (GFIs).
The assets should have become non-performing on or before December 31, 2022. They may be non-performing loans (NPLs), including receivables and restructured loans whose principal and/or interest have remained unpaid for at least 90 days after they have become past due or after any events of default under the loan agreement.
FIs may likewise transfer to FISTCs real and other properties acquired (ROPA) in settlement of loans and receivables, including shares of stocks and personal properties acquired by way of dation in payment, or judicial or extra-judicial foreclosure or execution of judgment or enforcement of security interest.
Meanwhile, a FISTC may issue Investment Unit Instruments (IUIs) to any qualified buyer in the minimum amount of P10 million, pursuant to a FISTC plan submitted to the SEC and issued with a Certificate of Permit to Sell or Offer for Sale Securities.
Under the IRR, the transfer and other related transactions involving eligible NPLs and ROPAs shall be exempt from the payment of certain taxes such as the documentary stamp tax, capital gains tax, creditable withholding income taxes, and value-added tax, subject to the applicable revenue regulations.
Transactions shall also be entitled to the payment of reduced fees, including 50 percent of the applicable mortgage registration and transfer fees; 50 percent of the filing fees for foreclosures; and 50 percent of the land registration fees.
To encourage the infusion of capital and financial assistance by the FISTC for the rehabilitation of the borrower's business, the IRR also exempts FISTCs from the income tax on net interest income arising from new loans in excess of existing loans, among others.