House panel okays financial industry resiliency bill

During a virtual meeting, the panel, chaired by Quirino Rep. Junie Cua, approved House Bill 6622, which aims to help financial institutions in their bad debt resolution and management of their non-performing assets (NPAs) in order to mitigate the economic impact of the pandemic on their operations. (Pexels photo)

MANILA – The House Committee on Banks and Financial Intermediaries on Monday approved the proposed Philippine Financial Industry Resiliency Act to help banks and other financial institutions withstand the economic downturn due to the coronavirus disease 2019 (Covid-19) pandemic.

During a virtual meeting, the panel, chaired by Quirino Rep. Junie Cua, approved House Bill 6622, which aims to help financial institutions in their bad debt resolution and management of their non-performing assets (NPAs) in order to mitigate the economic impact of the pandemic on their operations.

Cua said most financial institutions are facing a period of delayed loan collections and are at risk of recording higher NPAs across all borrower segments as a result of the disruption in economic activities.

NPAs are financial institutions’ non-performing loans (NPLs) and real and other properties acquired (ROPAs) in settlement of loans and receivables, which prevent banks and financial institutions from effectively performing their role of financial intermediation.

“They result in the financial intermediaries incurring heavy costs in the management and administration of NPAs activities that are best left to asset management companies. Moreover, much of the financial intermediaries’ liquidity is tied up in NPAs. High NPA ratios adversely affect investor and depositor confidence, ultimately hampering the efficient conduct of financial intermediation,” he added.

According to the Bankers Association of the Philippines, simulation shows a potential increase in NPLs from an estimated 5 percent today to 20 percent or more in a matter of months.

Cua said this would translate into approximately PHP240 billion to P300 billion of NPLs, of which between 50 percent to 80 percent, or PHP120 billion to PHP240 billion, may have to be written off. Similar substantial increase is also expected for ROPAs.

He stressed that the bill would help banks and other financial institutions offload their NPAs, induce economic activity, and improve the liquidity of the financial system to propel economic growth.

The bill seeks to encourage financial Institutions to sell NPAs to asset management companies, created as Financial Institutions Strategic Transfer Corporations (FISTC), that specialize in the resolution of distressed assets.

It also encourages the private sector, government financial institutions, and government-owned and controlled corporations to incorporate and invest in FISTCs and help in the rehabilitation of distressed businesses.

“The FISTCs should bring in new money to find new uses for NPLs and ROPAs, rehabilitate failed businesses, and increase lending,” Cua said.

The measure seeks to extend support to financial institutions, as well as FISTCs, in disposing of their NPAs by granting tax exemptions and reduced registration and transfer fees on certain transactions involving NPAs.

The tax exemptions shall include documentary stamp tax; capital gains tax; creditable withholding income taxes imposed on the transfer of land/or buildings, and value-added tax on the transfer of NPAs.

Fee privileges include 50 percent of the applicable registration and transfer fees on the transfer of real estate mortgage and security interest to and from the FISTC; 50 percent of the filing fees for any foreclosure initiated by the FISTC in relation to any NPA acquired from a financial institution; and 50 percent of the land registration fees.

“The proposed law affords financial institutions an avenue calculated to strengthen their balance sheets and ensure that the performance of their role as mobilizers of savings and investments for the country’s growth and development is not weighed down by the heavy costs of maintaining and servicing NPAs,” he said.