The FIST law to lower the bad debt rate of banks

President Rodrigo R. Duterte on Tuesday signed the law allowing financial institutions to offload bad debts through asset management companies.

Through Luz Wendy T. Noble and Beatrice M. Laforga, Reporters

The banking industry nothe productive loan ratio (NPL) should be reduced, with the implementation of the Strategic Institutional Transfer Law (FIST), Bangko Sentral ng Philippine Governor Benjamin E. Diokno said.

“This will ease banks’ NPL ratios in the future. FIST is expected to reduce the NPL ratio from around 0.63 to 7.0 percentage points, ”Diokno told reporters in a Viber message on Tuesday evening.

The banking sector’s NPL ratio stood at 3.61% at end-December, well above 2.08% a year earlier but still better than BSP’s projection of 4.6% for end-2020.

Republic Law 11523, or FIST Law, was promulgated on Tuesday by President Rodrigo R. Duterte. The law allows banks to clean up their books by selling their bad loans to so-called financial institution strategic transfer companies (FISTCs).

Mr. Diokno said the draft Rules and Regulations (IRR) have been circulated among industry players for comments. The Securities and Exchange Commission is the primary executing agency.

At the same time, the Finance Department is preparing guidelines on tax exemptions for Fifinancial institutions under the new law.

By law, the Ministry of Finance (DoF) and the Bureau of Internal Revenue (BIR) are expected to issue revenue regulations implementing the tax incentives within 30 days of their effactivity.

Meron na (IRR), revision in progress n / A BIR-DoF, ”said Marissa O. Cabreros, deputy commissioner at the office, in a text message Wednesday.

The FIST law covers the assets of financial institutions that will be considered non-performing until December 31, 2022. It exempts the transfer of non-performing assets from banks to a FISTC, and the FISTC to third party buyers or borrowers, from the payment of supporting documents. stamp duty, capital gains tax, withholding tax and value added tax (VAT).

Transfers will also be subject to lower fees. The registration, land registration and transfer fees of the Land Registration Authority (LRA), as well as Fithe seizure fees for seizures by the FISTC, have been reduced to 50% for two to Fifive years.

In addition to the tax advantages on transfers, the law also provides tax exemptions for the FISTC to encourage the injection of capital and Financial aid to Firm, such as exemption from income tax on net interest income, documentary stamp duty and mortgage registration fees on new loans, for up to five years.

The DoF previously estimated that FIST, which is part of the government’s stimulus package, will result in a “manageable” shortfall of 2.9 billion pesos to 11.6 billion pesos over the next five years due to tax exemptions.

“Remember that this law is a repetition of the 2002 Special Purpose Vehicle Law and people in the industry know that said law has been helpful and achieved what it was intended for, and this time around. here we hope it will be successful again, ”UnionBank of Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a Viber message.

Banks have become cautious in granting credit because of the risks associated with the crisis. BSP data showed lending fell 0.7% in December, the first in more than 14 years after months of sluggish growth.

Fintech President Angelito “Lito” M. Villanueva said the law will have a “ripple effect” that will benefit small businesses.

“As banks will improve liquidity through this law, more fintech players, who are themselves MEPs (micro and small businesses), can also lend to their customers again,” Mr. Villanueva in an SMS.

Meanwhile, ING Bank NV Manila Senior Economist Nicholas Antonio T. Mapa said that if the law is “a step in the right direction” to help lower the NPL ratio, it is not the only solution to the bank credit crunch which is rooted in both weak borrower demand and risk-off attitude of banks towards the granting of credit during the crisis.

“With income at risk, potential borrowers are likely to be in cash-holding mode, with a good majority eventually choosing to save money.ff investment decisions until the economy improves, ”he said.

“In the meantime, despite aggressive BSP rate cuts designed to bolster lending activity, banks have been largely unable to pass on these lower borrowing costs as they rely on additional premiums due to the risk levels. high given the recessionary environment, “he added.

The Institute of Financial Executives of the Philippines (FINEX) said in a statement Wednesday that the law will help maintain a healthy financial sector as many companies struggle to pay off debts amid a pandemic-induced recession.

“The new law removes the obstacles that prevented the previous law from fully achieving its objectives. Hopefully this will encourage the banking sector to continue lending to the private sector and thus achieve its goal of rehabilitating struggling businesses and making them significant contributors to our economic recovery, ”said FINEX.

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