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MANILA, Philippines – An administration-backed stimulus measure finally became law on Tuesday, after a month of waiting in Congress for the holidays and a week in the office of President Rodrigo Duterte.
The Strategic Transfer of Financial Institutions (FIST) is now a law under the Republic Law 11523, under which banks currently burdened with unpaid debts will be able to discharge them at designated firms to take charge of disposing of them. Malacañang released a copy of the law on Tuesday.
FIST was a priority piece of legislation that allowed the Senate to swiftly pass it on second and third reading on the same day late last year. But ratification of the bill did not come until the last full day of session on December 18, leaving the measure stuck for printing and final review in the chamber before being transmitted to the Office of the President.
The bill was transmitted to Duterte for his signature just the last week of January, Senate President Vicente Sotto III had said in a text message.
However, all is well if it ends well, and now the task of implementing the law falls heavily back on the Bangko Sentral ng Pilipinas (BSP), which had already been burdened with trying to pull the economy out of a colossal recession last year. last while the Duterte administration remained reluctant to unleash a much-justified fiscal stimulus.
Instead, economic officials have touted FIST, among others, as a compelling solution. With the enactment of FIST, the government is only waiting for two more pieces of legislation to pass, one is the Corporate Recovery and Tax Incentives for Businesses (CREATE) bill that is also awaiting Duterte’s signature. GFI’s Unified Initiatives for Troubled Businesses or GUIDE, meanwhile, are still far behind in the bill that was just passed by the Lower House recently.
The enactment of GUIDE and CREATE will continue to be necessary to get the economy back on track, at least in the eyes of acting secretary for socio-economic planning, Karl Kendrick Chua, who sees all three bills, along with the 2021 budget, as a “package”.
However, Chua admitted that given the delays in passing the bills, their impact on economic output is likely to be moderate, at least in the first quarter.
But the approval of the FIST alone is good news for the central bank that is trying to draw P2 trillion of liquidity from the banks and towards the businesses and consumers that they should help with loans. Bank loans contracted for the first time in 14 years in December, and for BSP deputy governor Chuchi Fonacier, FIST is the answer they are looking for to encourage lenders to do their jobs.
Essentially, lenders are hesitant to lend because, as it stands, they are already burdened with unpaid debts from borrowers who have lost their jobs to the pandemic. The moratorium on the payment of debts imposed by two “Bayanihan” laws last year only delayed that pain and now that those that have expired, the delinquency scale is already showing, and with that capital banks had to set aside to cover losses.
The hope is that FIST will help people like Rena Alessa Nicerio’s mother get loans faster. Hoping to secure fresh capital for her handicraft manufacturing business in Bicol, Nicerio’s mother presented a business loan to a local lender last week. Loan processing typically only takes up to 14 days, but 7 days and Nicerio said there is no indication that his loan will be approved anytime soon.
“It is difficult if we talk about large loans. For small loans for us, which is an MSME, presenting a loan worth 50,000 pesos is easier. But beyond that, the processing is slow or even ends without being approved”, Nicerio said in an online exchange.
That’s why FIST comes at the right time, but putting it in place would be the next hurdle. Under the law, FIST corporations would have to be established by financial institutions, including banks and insurance companies. This requires the registration of the company in the Securities and Exchange Commission, certification of tax incentive from the tax office, as well as complying with strict capitalization requirements of the BSP, among others.
While the absence of implementing rules does not prevent the law from being applied, lenders would definitely look to regulators for guidance on how to proceed. The Philippines had experience with special-purpose vehicles that absorb bank debt during the 1997 Asian financial crisis, which served as a model for FIST, so navigating through the new law should be a bit easier.
“We still need to monitor developments in this space during the first quarter of 2021 … The figures may not yet have captured that factor as the debt moratorium was still in effect at that time,” Fonacier said in a message from text on February 8.
While it declined in December, bad debts remained elevated at 3.61% of total loan books at the end of 2020, BSP data showed.
But the main point really is to remove that burden on banks in the hope that it will drive them to extend more credit to an economy that contracted 9.5% year-on-year in 2020, and is looking to rebound to growth of 6.5-7.5% this time. moment. anus. For the government and BSP, FIST is a first step towards that goal.
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