Finance Secretary Carlos Dominguez III on Wednesday asked Congress to support a bill that will preserve the asset quality of banking institutions and ensure the strength of the financial sector amid economic crises.
Dominguez pushed for the passage of the proposed Financial Institutions Strategic Transfer Act, which he said would protect the financial sector from any lasting damage from the unprecedented economic crisis by guaranteeing a steady source of credit for the pandemic-hit sectors while providing safeguards to consumers.
He said to stem the damage to the economy of the 1997 Asian financial crisis that lasted until the early 2000s, a similar measure—the Special Purpose Vehicle Act of 2002–was passed by Congress, but this law was enacted only five years later when most distressed businesses had already recovered and able to meet their financial obligations.
Dominguez said if the SPV law had been available earlier at that time, local banks could have helped businesses recover faster.
“This time, we are acting swiftly and proactively while our banks’ asset quality is still relatively solid. Financial institutions also need time to learn how to use these instruments. Your honors, now is the time to act. Fireproofing, after all, is best done before the fire,” said Dominguez during the virtual joint hearing on the FIST bill conducted by the Senate committees on banks, financial institutions and currencies and on ways and means.
The FIST bill was among the priority measures that President Rodrigo Duterte presented to Congress during his 5th State-of-the-Nation Address on July 27.
The House of Representatives already passed its version of the FIST bill on third and final reading before the sine die adjournment of Congress in June.
“Enacting FIST will fortify the financial sector and keep it strong and stable for the difficult task of rebuilding our economy,” Dominguez said.
Under the FIST Act, allowing banks to outsource the management of their non-performing assets to asset management companies will enable them to focus on what they do best, which is their primary task of lending to sectors in need of credit, Dominguez said. Julito G. Rada
“By keeping non-performing assets contained and managed, FIST will expand the amount of risk banks can take. This benefit cannot be understated in a crisis, when lending to businesses is riskier but also more urgently needed,” he said.
Dominguez said the FIST Act is an “improved version” of the old SPV law and would help the financial system mobilize credit for the productive segments of the economy.
FIST will also encourage the private sector, government financial institutions and government-owned or -controlled corporations to help rehabilitate distressed businesses, he said.
The measure provides tax incentives to defray the transaction and transfer costs of non-performing assets to asset management companies.
Dominguez said this would entail foregone revenues of between P3.3 billion and P13 billion every year for the next five years to clear the books of banks of bad debts, and to keep the economy going.
“We believe that the economic benefits of strengthening the financial sector through this effort outweigh the fiscal costs of doing so,” he said.