The Philippine central bank is helping commercial banks get rid of bad loans in order to jumpstart economic recovery.
Most central bankers insist that their country’s banks get rid of bad loans, but don’t offer much help. Not Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, which received applause from Philippine banks for the promulgation, on February 16, of the law on the strategic transfer of financial institutions (FIST), which allows bad or doubtful debts to investors.
Speaking on Zoom at the end of March, BSP Governor Benjamin E. Diokno announced the law’s promise to increase critical liquidity supplies. In 2020, the Philippines saw its GDP decline by 9.5%, the biggest drop since the launch of the indicator.
The Bankers Association of the Philippines (BAP) has also expressed support for the bill, which allows a new type of special purpose vehicle – a FIST company, or FISTC – to acquire and manage non-performing assets ( NPA), including loans, from financial sources. institutions. FISTCs can also hire third parties to manage and dispose of them. To tempt investors, FISTCs benefit from various tax and fee reductions – a capital gains exemption on land transfer and a 50% reduction on registration and mortgage transfer fees, to quote two examples. The BAP expressed hope that the law would allow banks to increase lending to spur economic recovery.
Luke Furler, a Singapore-based partner and director of restructuring at AJCapital, remains skeptical. “It’s a familiar strategy deployed by both governments and individual banks,” he said, pointing to Thailand and Ireland. But “it just separates the dirty laundry from the rest,” he warns. “The often overlooked reality is that an NPL needs a lot more management than a performing loan.” In addition to advising borrowers to “realize” their debt profile, he recommends early engagement with lenders to ensure rapid restructuring. “And then turn your mind to preparing for the next time this happens,” he says. “What would you do differently?”