Several sectors of the Philippine economy are still grappling with the effects of the coronavirus disease 2019 (Covid-19) pandemic. While e-commerce providers continue to gain ground during the new normal because of the nature of their services, other industries like travel and retail are still addressing challenges following the onset of the global health contagion.

Banks and financial institutions are likewise facing difficult times since the pandemic hit. The year 2020 has introduced a significant spike in non-performing loans (NPLs) in banks across the country, loans that are past due for 90 days or more. Data from the Bangko Sentral ng Pilipinas (BSP) show that there was a 74.77 percent climb in the number of NPLs by the end of December 2020 at P391.65 billion, compared to the P224.10 billion declared by the BSP during the same period in 2019. Clearly, this is due to the current Covid-19 health crisis, which has compelled banks to restrict operations and has pushed businesses to neglect their liabilities because of minimal to lack of revenues coupled by mounting expenses despite slow business activity due to health and safety protocols.

Preventive measures such as the strengthening of online banking and digitalization of other lending services were proven to be insufficient to mitigate the effects of the pandemic. To help businesses wade through the new normal, the Senate on September 24 filed Senate Bill 1849 or the Financial Institutions Strategic Transfer (FIST) Act. The measure seeks to strengthen the resilience of the financial and banking industry in the midst of the pandemic.

Senator Grace Poe, who sponsored the bill, has earlier stated that approving this legislative measure is a necessary step for the government to support banks, which in turn would be able to aid micro, small and medium enterprises (MSMEs). The President shared the same sentiment and has early on expressed the importance of enacting the proposed bill into a law. Subsequently, the FIST Act was approved and signed into law.

The FIST Act repealed Republic Act (RA) 9343, or the Special Purpose Vehicle (SPV) Act of 2002, and RA 9343, another legislation, which has amended some provisions of the SPV Act. The FIST Act builds on some of the features of the SPV Act by relieving banks of NPLs so that they can focus on boosting their lending services and their portfolio.

Two of the primary objectives of the FIST Act include aiming to develop and maintain a sound financial sector for the country and eliminating existing barriers in the acquisition of non-performing assets (NPAs) as embodied in the FIST Act. As mentioned in our previous article on the FIST Act, these objectives can be met by establishing so-called FIST Corporations (FISTC), which have the authority to "invest in, or acquire NPAs of financial institutions (FIs)" and the capacity to "restructure debt, condone debt and undertake other restructuring related activities" that are in line with NPLs.

Under the provisions of the FIST Act, numerous incentives such as tax exemptions and fee privileges can be rolled out to financial institutions. Other incentives include the reduction of interest, extension of deadlines and payment periods, as well as the easing of the processes and conditions for repayment of debt. According to data from the BSP, this would therefore ease about P152 billion worth of NPLs in the next two years and effectively reduce the NPL ratio in the near future. The FIST Act, therefore, would be a catalyst in liquidizing banks' lending services in various sectors.

Activities to be pursued in line with the FIST Act are required to be documented in the FISTC Plan and must be submitted for the approval of the Securities and Exchange Commission (SEC). Funding for FISTC could be acquired through investments from the owners of such corporations and through the issuance of participation certificates called investment unit instruments (IUIs) which, in turn, allows FISTC to receive funds from the public.

The timely approval of the FIST Act last year and its recent publication in the Official Gazette on March 26 show the government's commitment to propel national economic growth and to maintain financial stability. The government's enactment of similar statutes is therefore seen to gradually provide ease and convenience to businesses in key sectors of the economy and to help them navigate through the challenges brought by the current new normal.

Merely wanting and planning to reduce NPLs are clearly not sufficient to reduce the number of these NPLs in a bank's portfolio. Aside from being more informed about the provisions of the FIST Act which can be beneficial to business operations, financial institutions must also engage the professional services of trusted advisors who are adept in providing sound advice about handling non-performing loans and non-performing assets. For institutions who have yet to employ such services, choosing to seek help from professionals is a tough decision to make. However, with the plethora of benefits that await financial institutions under the FIST Act, the answer is simple – seek quality advisory services, let go of NPLs, and in the long-term, contribute to the recovery of the Philippine economy.


As published in The Manila Times, dated 26 May 2021