With the promulgation last week of the implementing rules and regulations of the Financial Institutions Strategic Transfer (FIST) Act (Republic Act No. 11523), the government has delivered a solid jab into the financial muscle of banks as prime movers of business and industrial growth that has taken a nosedive in the wake of the COVID-19 pandemic.
This new law supersedes and repeals Republic Act No. 9182, which granted tax exemptions and other privileges to newly created firms, known as special purpose vehicles, that assume bad loans and invest in banks’ non-performing assets. The FIST companies take on the management of such debts and assets, deploying their expertise in rehabilitating the loans of the banks’ distressed clients.
Securities and Exchange Commission Chairperson Emilio B. Aquino expressed optimism 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.”
Latest data from Bangko Sentral ng Pilipinas show that as of end-November 2020 gross non-performing loans (NPL) ratio stood at 3.81 percent, which is higher than 2.19 percent for the same period in 2019. Previously, NPLs had jumped 26.7% to P273.6 billion in June 2020, compared to P215.91 billion in June 2019.
In a recent forecast, S&P Global Ratings projected NPLs to expand by six percent this year. Asset quality is also seen to deteriorate as soon as the actual year end 2020 figures are determined after the end of payment moratorium mandated by Bayanihan to Recover as One Act for loans with due dates between Sept. 15 to Dec. 31, 2020. S&P projects “only a mild recovery in profitability” by end-2021, while seeing a possible return to pre-pandemic financial performance only in 2023.
Special focus on the increase in banks’ non-performing loans is directed at micro, small and medium enterprises (MSMEs) that have borne the brunt of the prolonged lockdown, particularly those in retail, hotel and tourism, restaurants and food services, transportation, recreation and entertainment. All told, restructured loans extended to small businesses and consumers were at 1.9 percent, or five times higher than the 0.4 percent tallied at year-end 2019.
Like the newly-enacted Corporate Recovery and Tax Incentives (CREATE) Law, the FIST Act seeks to revitalize the business sector as an engine of economic revival. The economy’s rebound from the pandemic-induced recession is still mired in fits and starts, as the government seems to be groping for effective solutions to contain the most recent COVID-19 upsurge.
When some members of the House of Representatives began calling for a resumption of discussion on proposed amendments to the economic provisions of the Constitution, the Financial Executives Institute of the Philippines (FINEX) weighed in with its opposition as expressed by its President Francisco Lim: “It is akin to undertaking house renovation while the family struggles to pay for the food, basic education, hospitalization expenses and other basic necessities badly needed by the family.”