September 2, 2020
Senator Grace Poe, Chairman of the Committee of Banks, Financial Institutions and Currencies; Members of the Senate; Fellow Workers in Government: good morning.
Thank you very much for this opportunity to discuss the urgency of passing the FIST Act or Financial Institutions Strategic Transfer.
In his recent State of the Nation Address, President Duterte requested the immediate passage of this measure, as part of this administration’s economic recovery program. We thank you for heeding the President’s request.
Keeping the banking sector strong and stable is critical in overcoming our challenging economic conditions. The tools that FIST supplies the banking sector have already been tried, tested, and proven effective in achieving this objective.
During the Asian financial crisis in the late 1990s to the early 2000s, the banking sector’s vulnerabilities worsened the damage to our economy. Not having fully recovered from the troubles of the 1980s, our banks during that time were not in the best position to withstand mass defaults during the crisis.
To reverse the deterioration of asset quality, Congress and the Executive worked together to enact the SPV Act of 2002 or the Special Purpose Vehicle, with the current Minority Leader Frank Drilon as one of its strongest advocates back then. This allowed banks to dispose of billions in non-performing loans by the time the law lapsed in 2005. The measure also helped bring the sector back onto a sturdier course.
In hindsight, and as Senator Villar pointed out during the last hearing, it would have been better to enact the SPV earlier. The crisis began in 1997, but the law was enacted only five years later, when most distressed enterprises had already recovered and could already meet their financial obligations. Had the SPV been available earlier, 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.
Having learned our lessons from the Asian financial crisis, and because of reforms such as the SPV, our financial sector was able to bounce back better. Along with other international observers, The Economist magazine has recently affirmed the strength of our financial sector by ranking the Philippines sixth in financial strength among 66 emerging economies. This strength is bolstered by our high investment-grade credit ratings. Our ratings have endured a global tide of downgrades and remain at the highest levels they have ever been. We transformed our banks from a sector severely weakened by crisis, to one of the strongest financial sectors among emerging economies.
Today we face another historic challenge, and we must once again work together to overcome it. The continued strength of the financial sector will ensure that we will be able to recover faster than we did in past crises. We have studied the SPV law and the subsequent decisions of the Supreme Court on the matter, and have taken them into account. The FIST Act we are proposing is an improved version. It will protect the financial sector from any lasting damage, and ensure that credit will be steadily available during this crisis and in the recovery stage. At the same time, the proposed FIST provides safeguards for consumers.
Once enacted, FIST will help the financial system mobilize credit for the productive segments of the economy by keeping soured assets from spoiling the rest of the sector. It will also encourage the private sector, government financial institutions, and government-owned or -controlled corporations to help rehabilitate distressed businesses.
By allowing banks to outsource the management of non-performing assets to asset management companies, FIST will help banks focus on what they do best: lending to sectors in need of credit. 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.
This bill provides tax incentives to defray the transaction and transfer costs of non-performing assets to asset management companies. We believe that the economic benefits of strengthening the financial sector through this effort outweigh the fiscal costs of doing so. We are willing to forego revenues from 3.3 billion pesos – or if all avail of the tax benefits – to 13 billion pesos every year for the next five years to clear the banks’ books and keep the economy going.
The swift enactment of FIST will boost trust and confidence in the financial system. Banks are among our strongest economic assets. This is due to prudent reforms enacted by different administrations, and because of President Duterte’s sound macroeconomic and fiscal management.
Enacting FIST will fortify the financial sector and keep it strong and stable for the difficult task of rebuilding our economy.
Thank you very much.
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