FIST bill reaches Senate floor for plenary deliberations

MANILA, Philippines — A bill seeking to aid banks and financial institutions by allowing them to offload bad loans in a bid to cushion the economic impact of the coronavirus pandemic has now reached the Senate floor for deliberations.

During Monday’s plenary session, Senator Grace Poe, chair of the Senate banks, financial institutions and currencies committee, endorsed for plenary approval Senate Bill No. 1849 or the proposed Financial Institutions Strategic Transfer (FIST) Act.

The bill is contained under Committee Report No. 116, which was signed by 19 senators.

“Let’s stop playing catch-up with the pandemic and prepare the policy for the worse. We know what is coming. Mabuti na pong handa tayo kung sakaling kailanganin (It’s better that we are ready in case we would need it),” Poe said in her sponsorship speech.

Similar to the two Bayanihan laws providing interventions for the country’s COVID-19 response and recovery, Poe said the FIST bill is also a proactive response to the health crisis.

The bill intends to help banks manage bad loans, deal with the surge in non-performing assets (NPAs) and rehabilitate struggling businesses.

It seeks to encourage banks and financial institutions to sell their NPAs to FIST corporations that will specialize in the resolution of distressed assets.

Citing estimates from the National Economic and Development Authority (NEDA), the senator said the FIST measure could potentially free up P1.19 trillion worth of loans from the sale of NPAs to FIST corporations.

“This, in turn, could help serve around 600,000 micro, small, and medium enterprises (MSMEs), and save over 3.5 million related jobs,” Poe said.

Poe said NEDA’s estimates were based on the data from the Bangko Sentral ng Pilipinas (BSP) and assumptions from the banking sector, which showed that NPAs could reach up to P635 billion by the end of 2020 alone.

“These are, of course, still preliminary estimates and are pending further confirmation by the agencies which actually crunch the numbers, but they give an initial estimate of how the proposed Financial Institutions Strategic Transfer Act can help save MSMEs and jobs,” the senator added.

‘We must help banks first’

According to Poe, the proposed measure’s prime objective is “really to keep the banking sector above water” amid the pandemic.

“Before the banks can help MSMEs, we must help the banks first,” she said.

The FIST bill, according to Poe, is an “improved” version of the amended Special Purpose Vehicle (SPV) Act of 2002, which was passed into law as a response to the Asian Financial Crisis.

“We say improved because we are deliberating it half a decade earlier this time around before we even see the full brunt of the crisis,” Poe said.

“Ibig sabihin noong nagkaroon dati ng Special Purpose Vehicle Act ay matagal bago ito naipasa, ilang taon na ang nakaraan ang Asian Financial Crisis. Ito, kakaumpisa pa lang ng pandemic ay atin nang isinusulong,” she added.

(This means that the old Special Purpose Vehicle Act was enacted years after the Asian Financial Crisis. But in the case of this bill, we are already pushing for it at the height of the pandemic.)

Salient points

Under the bill, Poe said financial institutions will be allowed to offload non-performing assets to FIST corporations.

“The covered institutions from the old SPV law were expanded to include lending companies and other institutions licensed by the BSP to perform credit-granting companies,” she noted.

“Ang mga lending companies ang siyang nangunguna sa MSME lending kaya naman kailangan silang matulungan na maayos ang balance sheets nila,” she further explained.

(It’s the lending companies that are leading in MSME lending that’s why we need to help them.)

Several new safeguards have also been added under the measure, according to Poe.

She said that one person corporations will be prohibited from setting up their own FIST corporations.

“Further, to ensure that limited government resources will not be used for risky endeavors, government financial institutions will also not be allowed to set up their own FIST corporations,” she added.

To address possible violations of the anti-dummy law, Poe said foreign participation in foreclosure sales of lands has been removed under the bill.

The Securities and Exchange Commission (SEC) and the Department of Justice “are given the power and responsibility to investigate violations,” said Poe.

In a bid to “address the problem of high capitalization requirement in the old SPV Act,” the senator noted that “only adequate minimum capitalization is now required, as may be prescribed by the [SEC].”

“Where land and foreign equity participation are concerned, minimum capital requirements under the Constitution and the Foreign Investments Act shall be followed,” she said.

Under the bill, Poe said that the usual remedies which result in “protracted” litigation like injunctions or equitable right of redemption under Article 1634 of the New Civil Code will not be allowed against the transfer of assets.

“For clarity and to avoid any further litigation, it is now expressly stated that while notice to all affected parties is necessary, the consent of the borrower is no longer required,” she added.

“Despite this, however, the borrower shall still be given a period of at most 90 days to restructure or renegotiate the loan. The rights of borrowers under existing laws shall not be impaired nor diminished. A consumer protection mechanism shall also be set up,” she further explained.

Penalties

If enacted into law, violators of the provisions of the measure could face a penalty of up to P1 million.

“Aside from the suspension or revocation of the approved FIST Corp. Plan, a fine of P10,000 to P1 million plus P2,000 for every day of violation may be imposed,” Poe said.

“Administrative sanctions under applicable laws shall also apply,” she added.

Meanwhile, Poe said BSP Governor Benjamin Diokno has assured the Senate panel that tackled the measure that the country’s banking system “has built-in buffers.”

“There is, however, a limit to this risk-bearing capacity. May hangganan ang utang na kayang pasanin ng ating mga bangko. (There is a limit to the amount of debt that our banks can manage). The swift enactment of this law will promote investor and depositor confidence, and mitigate the effects of the crisis,” she added.

“We also see this strategy being employed elsewhere in the world. South Korea, Ireland, and China have all been using their existing asset management corporations to acquire bad debts caused by the COVID-19 pandemic. Others like Greece, Malaysia and the European Union are also exploring setting up their own versions,” she added. [ac]