A bill that would allow banks and other financial institutions to offload soured loans made it to the Senate plenary on Monday, September 28, putting it up for final debates and eventual passage.

Senator Grace Poe delivered her sponsorship bill for Senate Bill no. 1849 or the Financial Institutions Strategic Transfer (FIST) Act on the Senate floor on Monday afternoon.

“When we get to the bottom of it, this law’s primary objective is really to keep the banking sector above water during this crisis. Before the banks can help MSMEs, we must help the banks first,” Poe said.

MSME stands for micro, small, and medium enterprises.

The proposed measure can possibly free up P1.19 trillion worth of loans from the sale of non-performing assets to management companies, or “FIST corporations,” which, in turn, may help around 600,000 MSMEs and save more than 3.5 million jobs, said Poe, citing estimates from the National Economic and Development Authority (NEDA).

The FIST bill will allow all financial institutions to offload non-performing assets, including non-performing loans, to FIST corporations. It will cover banks and other lending companies licensed by the Bangko Sentral ng Pilipinas.

“Ang mga lending companies ang siyang nangunguna sa MSME lending kaya naman kailangan silang matulungan na maayos ang balance sheets nila,” Poe said.

(Lending companies are the top lenders to MSMEs so they need help in fixing their balance sheets.)

Improved version of SPV Act of 2002

The bill eases certain restrictions on qualifying for coverage, but borrowers are given at most 90 days to restructure or renegotiate their loans. Borrowers’ rights under existing laws “shall not be impaired or diminished,” and the measure will include a mechanism to protect consumers, Poe said.

The proposed measure aims to preempt the adverse economic impact of the COVID-19 pandemic. Poe said it is an “improved version” of the Special Purpose Vehicle (SPV) Act of 2002, which was meant to help the economy recover from the Asian Financial Crisis.

However, the SPV law was enacted 5 years after the crisis, and it could have helped more had it come earlier. Poe said the FIST bill, if enacted soon, will soften the pandemic’s blow on the economy in a timely way.

The FIST bill includes penalties for violators – the suspension or revocation of the approved FIST corporation plan, a fine of between P10,000 to P1 million, and an additional P2,000 for each day the violation persists.

Poe said countries that have used a similar strategy in cushioning the pandemic’s impact on lenders include South Korea, Ireland, and China. Others like Malaysia, Greece, and the European Union as a whole are also considering their own versions, she added.

The FIST bill is a priority measure of the Duterte government, one of several laws and bills meant to tide the country over the COVID-19 crisis.

The House of Representatives passed its version of the FIST bill in June.

“The governor of our central bank assures us that the country’s banking system has built-in buffers. There is, however, a limit to this risk-bearing capacity…. The swift enactment of this law will promote investor and depositor confidence, and mitigate the effects of the crisis,” Poe said. – Rappler.com