The central bank’s Monetary Board has issued the circular for banks’ sale/transfer and investment transactions under the Financial Institutions Strategic Transfer (FIST) Act (Republic No. 11523).

The circular was on the transfer/sale of non-performing assets (NPAs) to a FIST corporation or FISTC, special purpose vehicle (SPV) or to an individual under the FIST law and banks’ guidance on the prudential treatment of sale/transfer of NPAs to avail of the tax exemptions and other incentives and privileges.

Bangko Sentral ng Pilipinas (BSP) Circular No. 1117, signed by BSP Governor Benjamin E. Diokno last Thursday, contained the guidelines for banks and other BSP-licensed financial institutions with quasi-banking functions and credit-granting activities on how to conduct transactions under the FIST law.

“The implementation of the FIST Act reinforces the BSFIs' (BSP supervised financial institutions) primary role of providing financial services and liquidity to support households, business enterprises and productive sectors of the economy by allowing BSFIs to dispose of their NPAs and increase their liquidity and risk-bearing capacity,” according to the circular’s policy statement.

Diokno said previously that the FIST law will free up more than 30 percent of the banking sector’s NPAs. His estimate is based on the previous law, the SPV Act of 2002 which was adopted four years after the 1997 Asian Financial Crisis. The FIST law will also lead to banks’ lowering of its non-performing loans (NPL) ratio by 0.63 to 0.71 percentage points within two years of its implementation. The NPL ratio is expected to hit above six percent by end-2021. 

The sales or transfers of NPA from financial institutions to a FISC are transfers by way of dacion in payment by the borrower or by third-party financial institutions and these are entitled to the privileges enumerated under Section 15 of the law for a period not more than two years from the date of effectivity.

The FIST Act took effect on 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.

To encourage banks to make use of the law, the BSP has simplified the procedures for application of the certificate of eligibility (COE) of non-performing assets. COEs will be issued by the BSP, the Securities and Exchange Commission or the Insurance Commission for tax exemptions and fee privileges.

Aside from banks, entities covered by the law include financing companies, investment houses, lending companies, accredited microfinance non-government organizations, insurance companies, government financial institutions, government owned or controlled corporations, non-stock savings and loan associations, and non-bank credit card issuers.