Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said Tuesday that the operationalization of the Financial Institutions Strategic Transfer or FIST Act is expected to reduce banks’ non-performing loan (NPL) ratio by 0.6 to 5.8 percentage points (pp) starting this year.
Over a spread of four years or until 2025, NPL ratio under FIST Act will be brought down by as much as 5.8 pp as the banks will be able to manage NPL through the transfer or sale of non-performing assets (NPA) to FIST Corporations, Special Purpose Vehicles and eligible individuals.
“The implementation of the FIST Act is projected to reduce the average NPL ratio for the banking system by 0.6 to 5.8 percentage points for the years 2021 to 2025,” said Diokno during the 6th Joint Economic Briefing of the European Chamber of Commerce of the Philippines (ECCP).
The BSP’s previous estimate was that the FIST Act will slash NPL ratio by 0.63 to 0.71 pp within two years of the FIST implementation.
The FIST Act or Republic Act No. 11523 took effect last February 18. It allowed banks to easily dispose of their NPAs via asset management companies to free up bank liquidity and to boost lending to critical sectors needed to reenergize the economy in recession.
Diokno said the banking sector continue to be resilient despite rising NPL ratio amid the COVID-19 pandemic.
He said banks have “kept the impact of the crisis manageable” with a healthy capital adequacy ratio while NPL ratio has also remained manageable and “far from levels seen in the aftermath of the Asian financial crisis.”
“Liquidity coverage ratios also are above regulatory requirements,” said Diokno.
As of end-April this year, gross NPL ratio stood at 4.35 percent. NPL ratio has steadily climbed from end-2020 level of 3.6 percent to 3.72 percent in January, 4.08 percent in February and 4.21 percent in March.
Diokno has said that he expects NPL ratio to breach six percent by end of 2021. He said this estimate is consistent with its most recent survey of banks’ outlook for the year which remains to be stable.
But with the FIST Act, Diokno is confident that the financial system can withstand the risks and challenges of the COVID-19 pandemic.
During the ECCP economic forum, the BSP chief said that after a year and four months into the global pandemic – “we can now say that the worst is behind us.”
He again noted the green shoots of the local economy’s recovery which has began to show as early as the third quarter of 2020. “Strong economic Indicators are showing we are headed there,” he told the country's foreign investors.
“The Philippine economy is on the mend and is expected to revert to robust pre-pandemic growth levels by the middle of next year,” said Diokno.
He also said the BSP “will continue to support the economy” and that they recognize that “the timing for the unwinding of our response measures is crucial”, and that it is important they “carry out disengagement strategies in a way that avoids risks associated with early or late implementation.”