Measure letting banks dispose of bad loans is now law

MANILA, Philippines—Banks can finally get rid of their pandemic-induced bad loan buildup after President Rodrigo Duterte on Tuesday (Feb. 16) signed the Financial Institutions Strategic Transfer (FIST) Act into law.

Finance Secretary Carlos Dominguez III, who heads the administration’s economic team, announced this on Viber on Tuesday.

Under the FIST Act, banks and financial institutions can dispose of their non-performing loans (NPLs) and assets through asset management companies similar to special purpose vehicles (SPVs) formed 20 years ago after the Asian financial crisis.

Bangko Sentral ng Pilipinas (BSP) data showed that gross NPLs in the banking system climbed to P391.66 billion, or 3.61 percent of total loans, as of December 2020 from P234.99 billion, or 2.16 percent of total, in January 2020 or before the pandemic struck.

This time, FIST corporations (FISTCs) will “enable banks to offload souring loans and assets, clean up their balance sheets and extend more credit to more sectors in need,” the Department of Finance (DOF) had said.

According to the DOF, “financial consumer protection mechanisms are included in the FIST Act, which requires FISTCs to ensure that the borrowers’ rights under existing laws will not be impaired.”

“This mechanism will consist of standards of conduct on disclosure and transparency, conflicts of interest, protection of client information, fair treatment in terms of affordability and suitability of product or service, prevention of over-indebtedness, cooling-off period, and objectivity, effective recourse and exhaustion of all remedies, among others,” according to the DOF.

Dominguez, acting Socioeconomic Planning Secretary Karl Kendrick Chua and BSP Governor Benjamin Diokno had all pushed for the passage of FIST among measures which they said would aid economic recovery from the worst post-war recession in 2020 amid prolonged COVID-19 quarantine restrictions.