BSP limits IUIs in asset management firms


The Bangko Sentral ng Pilipinas (BSP) has set a limit of P10 million for a supervised financial institutions’ (BSFIs) investment unit instrument (IUI) transactions issued by a Financial Institutions Strategic Transfer Corporation (FISTC).

FISTCs are created under the FIST Act to enable banks and other credit-granting institutions to dispose of non-performing assets (NPA) or soured assets that have accumulated during the pandemic.

BSP building and logo/Reuters

In a circular (BSP Circular No. 1147) which amended the guidelines implementing the Financial Institutions Strategic Transfer Act, BSP Governor Benjamin E. Diokno said a BSFI “may acquire or hold lUls issued by a FISTC in the minimum amount of P10 million” only.

Diokno in the circular memo he signed on June 10, said compliance with the minimum investment requirement will be “determined for each acquisition/purchase by a BSFI of lUls of a FISTC in the primary and secondary markets and shall be based on the lUl's acquisition cost.”

The circular also stated that “changes in the net carrying value of a BSFI's lUl holdings resulting from change in market value/fair value or impairment of the lUls as well as maturity or redemption of the lUl by the issuer shall not affect status of compliance of the BSFI.”

Meantime, the BSP said both banks and non-banks are allowed to subscribe to, acquire, or hold FISTC-issued shares and other securities that are not considered as lUls but “subject to the provisions of the FIST Act, its IRR and other applicable Bangko Sentral regulations.”

IUIs are certificates, debt instruments or similar instrument issued by the FISTC. But these do not include instruments to be issued to the selling BSFIs as full or partial settlement of the NPAs transferred to FISTCs, according to the circular. It also does not include loans, advances, or other credit accommodations obtained by the FISTC from any BSFI other than the selling BSFI or from its shareholders.

Earlier this month, the BSP approved a prudential relief measure on the treatment of loss from the sale or transfer of NPAs under the FIST Act.

Based on a memo (BSP Memorandum No. M-2022-028), signed by BSP Deputy Governor Chuchi G. Fonacier last June 6, a BSFI can delay up to five years the reporting of losses from its idle assets’ disposal.

Fonacier said BSFIs have the option to defer loss arising from the sale or transfer of NPAs as part of prudential reporting but still subject to BSP approval.

The FIST Act or Republic Act No. 11523 took effect last Feb. 18, 2021. 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 for economic recovery.

The BSP has estimated that the FIST Act will reduce the banking sector’s average non-performing loan ratio by 0.6 to 5.8 percentage points from 2021 to 2025. It will also reduce NPAs by at least P150 billion.

The Securities and Exchange Commission has already approved five FISTCs that will help BSFIs offload soured assets and bad loans.