House panel approves bill on bad-loan transfers to AMCs

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北京赛车pk10投注THE House committee on banks and financial intermediaries approved on Monday a bill providing for the transfer of banks’ bad loans to asset management companies (AMCs) in expectation of a spike in non-performing loans in the wake of the public health emergency.

“We approve (the bill) subject to style and subject to the inputs of DoF (Department of Finance),” Quirino Representative and House banks and financial intermediaries committee chairman Junie E. Cua said at a virtual hearing of the panel.

Mr. Cua filed House Bill 6622 on April 24, which if passed will be known as the Financial Institutions Strategic Transfer (FIST) Law.

“To date, as a result of the pandemic and disruption of economic activity, most financial institutions are facing a period of delayed loan collections and are at risk of recording higher non-performing assets (NPAs) across all borrower segments. NPAs prevent banks and financial institutions from effectively performing their crucial role of financial intermediation,” Mr. Cua said in his explanatory note.

NPAs consist of financial institutions’ non-performing loans (NPLs) and real and other properties acquired (ROPAs) in settlement of loans and receivables.

The bill encourages financial institutions to sell NPAs to AMCs, to be known as Financial Institution Strategic Transfer (FIST) Corporations, which specialize in handling distressed assets.

“All sales or transfers of NPAs to a FIST shall be in the nature of a true sale after proper notice… without need for the borrower’s consent,” according to the bill。

In the case of NPLs, AMCs can restructure debt, condone debt and undertake other restructuring related activities to dispose of the debt, including to third parties。

The transfer of NPAs from a financial institution to an AMC, and from an AMC to a third party will be exempt from documentary stamp tax, capital gains tax, creditable withholding income tax and value-added tax。

Transfers are also subject to only 50% of applicable registration and transfer fees, 50% of filing fees on any foreclosure, and 50% of land registration fees. These privileges will be available for up to two years from the date of the effectivity of the bill’s implementing rules and regulations (IRR).

The bill provides that any loss incurred by financial institutions as a result of the transfer of NPAs will be treated as ordinary losses, with the loss carry-over subject to pertinent laws.

Only the Court of Appeals and the Supreme Court are empowered to issue injunctions against the transfer of NPAs。

AMCs will be required to set up consumer protection mechanisms “as may be prescribed in the IRR issued by the appropriate regulatory authority。”

The measure also encourages the private sector, government financial institutions, and government-owned or -controlled corporations to incorporate and invest in FIST corporations and help in the rehabilitation of distressed businesses “with the end view of contributing to economic growth。”

While the proposed measure will result in “revenue erosion” for the government, Finance Secretary Carlos G. Dominguez III said that he supports the bill.

“More or less what we are looking at is in terms of revenue erosion here. But again, it is not revenue we are expecting anyway to begin with because this is a totally unexpected event so we are willing to take some revenue erosion, the thing is we just have to estimate how much it will be in total,” he said.

北京赛车pk10投注“While we are 100% supportive of this and we are willing to provide fiscal incentives for this, please give us time to do the estimates, because right now we don’t really know how much of the loans will turn bad and how much of these are covered by assets that would qualify under this law,” Mr. Dominguez added.

National Economic Development Authority Acting Secretary Karl Kendrick T. Chua said that it is “very probable” that the bill will be given a certification of urgency by President Rodrigo R. Duterte.

“I think that is very probable because that is what happened also in the Bayanihan Act (Republic Act 11469) and considering we have very limited session days so we would recommend that approach. The direction I think is to recommend certification of urgency,” he said during the hearing.

If granted, the certification will allow the House to approve the measure on second- and third reading on the same day, doing away with the required three-day interval.

No counterpart measure has been filed in the Senate as of writing. — Genshen L. Espedido