banks in the Philippines

Senators slam gov’t officials’ no-show in FIST Act deliberations

Ralf Rivas

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Senators slam gov’t officials’ no-show in FIST Act deliberations
Agency heads are nowhere to be found as the Senate tackles a proposed law to help banks offload soured loans. A barking puppy breaks the ice.

Senators were dismayed after officials of the executive branch failed to attend a hearing which tackled how banks can offload bad loans amid the coronavirus pandemic.

At the virtual hearing of the Senate committee on banks on Wednesday, August 26, Senator Grace Poe questioned why top officials of the Department of Finance (DOF), Bangko Sentral ng Pilipinas (BSP), and Bureau of Internal Revenue (BIR) did not show up during the hearing on the proposed Financial Institutions Strategic Transfer (FIST) Act

The proposed FIST Act would: 

  • assist banks with offloading their debts and managing non-performing assets (NPAs)
  • provide incentives to banks and financial institutions to sell their NPAs to asset management companies or financial institutions strategic transfer corporations (FISTCs) that specialize in the resolution of distressed assets
  • exempt the newly formed entity (through a special purpose vehicle) from paying documentary stamp tax, capital gains tax, creditable withholding income taxes imposed on the transfer of buildings, and value-added tax

When Poe, the committee chairperson, asked about the proposal’s impact on revenue generation, BIR representatives Mariesol Girano and Neslie Arcolas said the bureau is opposing the measure.

This is particularly strange, as the DOF has pushed the FIST bill as an urgent legislative measure. The BIR is an agency under the DOF.

“I’d like to note also that this is a priority measure, and yet it’s disappointing to see that the heads of agencies didn’t really attend,” Poe said.

“They’re the ones saying that the economy needs it now. So, how will we know for sure that the economy needs it now if we don’t even have a commitment, an actual presence from those heads explaining to us in detail what their commitments are also and the safeguards they’re willing to accept?”

Senate Minority Leader Franklin Drilon expressed disappointment over the absence of top officials as well.

“I am disappointed by the cavalier attitude taken by the Bureau of Internal Revenue on the passage of this measure…. I wish they would send somebody more ranking,” Drilon said.

Projected losses

Senate President Pro-Tempore Ralph Recto quizzed the BIR representatives, asking them how much the government lost during the 1997 Asian financial crisis, when the special purpose vehicle mechanism was first launched. The BIR representatives failed to give an answer.

However, National Treasurer Rosalia de Leon told legislators that the government is projected to lose around P3.3 billion to P13.2 billion in the next 5 years due to foregone tax collections. The projections were based on the experience during the Asian financial crisis, when 25% of banks and financial institutions availed of a 35% discount on various fees and taxes. 

BSP Managing Director for Policy and Specialized Supervision Lyn Javier noted during the hearing that current bad debt levels stand at 2.4% and may double by year-end due to the pandemic.

Javier added that local banks’ capital adequacy ratio, which is an indicator of financial health, will end at 14.8% in 2020, lower than the 15% during the 1st quarter of the year. The figures, so far, are considered stable, but the BSP has endorsed the proposed FIST Act to add more safeguards.

Supporting the banking system is needed in any economic crisis, as the sector serves as a barometer of the economy’s health. 

A distressed financial sector may lead to banks holding off from lending, which would make it harder for businesses to get capital and recover from recession.

Light moment

Senators also sought comments from the Philippine Competition Commission (PCC) on the impact of the proposed FIST Act on market competition.

PCC lawyer Faye Condez tried to explain to the committee that the commission has not found sufficient studies on the matter just yet. But her barking puppy, heard on the online stream, caught the attention of senators.

“Just submit a report so the puppy can eat,” Senator Sonny Angara quipped.

The PCC earlier submitted a position paper, noting that it is still too early to assess the FIST bill from a competition perspective. There are, however, provisions in the Philippine Competition Act to serve as recourse, should it restrict market competition. – Rappler.com

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Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.