March 7, 2021

Commodity Reporters Guild

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FIST oversight panel wary of incentives abuse

THE TWO chambers of the legislature will form a Joint Congressional Oversight Committee (JCOC) to monitor the implementation of the Financial Institutions Strategic Transfer (FIST) Law, with its co-chairs saying that the panel will ensure that FIST incentives are not abused by parties availing of its tax-light asset-transfer rules.

“(The JCOC) will particularly ensure that the provisions on the FIST corporation applications and plans, transfer of assets, and availment of incentives and privileges are followed,” Senator Grace S. Poe-Llamanzares, who chairs the Committee on Banks, Financial Institutions and Currencies, said in a text message.

Ms. Poe-Llamanzares will co-chair the joint committee along with her House counterpart alongside Quirino Representative Junie E. Cua, who heads the House Committee on Banks and Financial Intermediaries.

The JCOC is authorized by Section 27 of the FIST Law, which went into the books as Republic Act No. 15523 after it was signed in February.

The law facilitates the transfer of non-performing loans and their underlying collateral assets to FIST corporations, which are known as FISTCs under the law. Unburdened by bad assets, banks are thus expected to resume their focus on lending growth to help the economy recover. The FISTCs will then specialize in managing the transferred assets, disposing of them or restructuring as necessary. They will also be allowed to sell shares to large investors to raise capital and allow investors to benefit from any returns generated.

“There should be a periodic evaluation of the incentives provided in Sections 15-17 as this is the portion of the law that can be abused,” Mr. Cua said in a text message.

The FIST Law allows financial institutions to sell their non-performing assets to FISTCs. The transfer rules apply to assets that become non-performing until Dec. 31, 2022.

The law provides for tax exemptions and fee privileges for transactions related to the transfer of non-performing assets from banks to FISTCs. These exemptions include documentary stamp tax, capital gains tax imposed on land transfers, value-added tax and creditable withholding tax in relation to the transfer of the assets.

It also gives additional tax exemptions and fee privileges for FIST corporations by excluding them from income tax on net interest income and documentary stamp tax.

“There should be a careful analysis of the transfer of assets from the financial institution to a FISTC and to a third party to ensure that there is no circumvention of the law,” Mr. Cua said.

“Ultimately, the Oversight Committee will ensure that all of the parties’ rights are respected,” Ms. Poe said.

The Bangko Sentral ng Pilipinas estimated the industry’s bad loan ratio at 3.7% in January, against 3.61% in December and 2.16% a year earlier.

In January, non-performing loan volume rose 0.15% month on month to P392.256 billion and rose 67% year on year. — Luz Wendy T. Noble

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