Press Release
September 28, 2020

Sept. 28, 2020

Mr. President, dear colleagues: I shall be brief and direct to the point. For that is how we should act when a priority measure is on the table.

The measure that I will be sponsoring is another proactive response to the pandemic. While it will not be talking about appropriations and actual release of money, it is no less important than Bayanihan 1 and 2 in terms of impact on our economy.

Whereas Bayanihan 1 allotted P375 billion and Bayanihan 2 earmarked P165 billion, or a total of P540 billion for the COVID-19 response, NEDA estimates that this proposed measure can possibly free up P1.19 trillion worth of loans from the sale of non-performing assets to management companies called FIST corporations. This, in turn, could help serve around 600,000 micro, small, and medium enterprises (MSMEs), and save over 3.5 million related jobs.

It used the following BSP data and assumptions from the banking sector as represented by the Bankers Association of the Philippines (BAP):

a. By end of 2020 alone, non-performing assets could reach up to P635 billion according to BSP moderate scenario estimates.

b. Of this number, the banking sector assumes that up to 40 percent could be sold to FIST corporations. A more moderate estimate pegs it to 25 percent or P159 billion. Of P159 billion, P238 billion of 150 percent could be freed up as capital. Further, 40 billion could be recovered by FIST corporations. Ultimately, BAP estimates that it could free up to P278 billion in total capital.

c. Multiply this with the average leverage ratio of 4.3 times and the total loan release could amount to P1.19 trillion.

d. Assuming that an average MSME of 6 workers - which is the average employment according to DTI - is able to borrow P2 million, the free capital could now give out loans and provide liquidity to 600,000 MSMEs which is equivalent to around 3.5 million jobs.

These are, of course, still preliminary estimates and are pending further confirmation by the agencies which actually crunch the numbers, but they give an initial estimate of how the proposed Financial Institutions Strategic Transfer Act can help save MSMEs and jobs.

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.

This is an improved version of the Special Purpose Vehicle Act of 2002, as amended, which was enacted as a response to the Asian Financial Crisis. We say improved because we are deliberating it half a decade earlier this time around before we even see the full brunt of the crisis.

Ibig sabihin noong nagkaroon dati ng Special Purpose Vehicle Act ay matagal bago ito naipasa, ilang taon na ang nakaraan ang Asian Financial Crisis. Ito, kakaumpisa pa lang ng pandemic ay atin nang isinusulong.

To jumpstart the discussion, let me walk you through the salient features of this proposed measure which were expertly reviewed and improved with the help of all stakeholders and our fellow Senators Drilon, Recto, Angara, and Gatchalian:

One, it will allow all financial institutions to offload non-performing assets to FIST corporations. The covered institutions from the old SPV law were expanded to include lending companies and other institutions licensed by the BSP to perform credit-granting companies. Ang mga lending companies ang siyang nangunguna sa MSME lending kaya naman kailangan silang matulungan na maayos ang balance sheets nila.

Two, the definition of true sale is amended in response to the difficulties faced in the old SPV law. All these sales and transfers shall be contained in a database to be submitted by FIST corporations to all regulatory agencies on a monthly basis for proper monitoring and review of the impact of incentives availment.

Three, new safeguards have been added. To prevent abuse of the system, one person corporations are prohibited to set up their own FIST corporations. Further, to ensure that limited government resources will not be used for risky endeavors, government financial institutions will also not be allowed to set up their own FIST corporations. To address possible violations of the anti-dummy law, foreign participation in foreclosure sales of lands is removed and the SEC and DOJ are given the power and responsibility to investigate violations.

Four, applications are extended to 36 months for assets that become non-performing as of Dec. 31, 2021. Longer application and applicability periods mean more time for financial institutions to harness the full benefits of the law. This period will give sufficient time to financial institutions to assess the need to offload bad assets.

Five, in order to address the problem of high capitalization requirement in the old SPV Act, only adequate minimum capitalization is now required, as may be prescribed by the Securities and Exchange Commission. Where land and foreign equity participation are concerns, minimum capital requirements under the Constitution and the Foreign Investments Act shall be followed.

Six, the usual remedies which result in protracted litigation like injunctions or equitable right of redemption under Article 1634 of the New Civil Code shall not be allowed against the transfer of assets. For clarity and to avoid any further litigation, it is now expressly stated that while notice to all affected parties is necessary, the consent of the borrower is no longer required.

Seven, despite this, however, the borrower shall still be given a period of at most 90 days to restructure or renegotiate the loan. The rights of borrowers under existing laws shall not be impaired nor diminished. A consumer protection mechanism shall also be set up.

Eight, there will be a two-year and five-year entitlement period for availment of fiscal incentives for all transfers from the financial institutions to FIST corporations and from FIST corporations to a third party, respectively. Since fiscal incentives are leakages in the revenue stream of the government, extensions may only be granted by Congress as required by the Constitution.

Nine, penalties will be imposed on violators of the provisions of this measure. Aside from the suspension or revocation of the approved FIST Corp. Plan, a fine of P10,000 to P1 million plus P2,000 for every day of violation may be imposed. Administrative sanctions under applicable laws shall also apply.

Lastly, we removed heavy reliance on implementing rules for the effectivity of the Act. The non-promulgation of implementing rules shall not prevent implementation. As discussed on the Senate floor, we should ensure that the law is complete in itself. This eliminates vagueness and delay caused by the crafting of implementing rules before the benefits of the law may be harnessed.

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. May hangganan ang utang na kayang pasanin ng ating mga bangko. The swift enactment of this law will promote investor and depositor confidence, and mitigate the effects of the crisis.

We also see this strategy being employed elsewhere in the world. South Korea, Ireland, and China have all been using their existing asset management corporations to acquire bad debts caused by the COVID-19 pandemic. Others like Greece, Malaysia and the European Union are also exploring setting up their own versions.

Add this to the fact that there is now a race for capital. When the Asian Financial Crisis hit, the West was providing the capital. This time around, everyone is in a crisis. We should set up a system for offloading bad debts earlier than the others. May kompetisyon sa kapital so dapat tayong magmadali.

Let's stop playing catch-up with the pandemic and prepare the policy for the worse. We know what is coming. Mabuti na pong handa tayo kung sakaling kailanganin.

It is my honor to endorse to this Chamber for deliberation Senate Bill No. 1849 under Committee Report No. 116.

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