Vol. XXI, No. 224 [ BusinessWorld Online ]
Monday, June 16, 2008 | MANILA, PHILIPPINES
BAD LOANS disposed of by banks upon the conclusion of the second round of the special purpose vehicle (SPV) law may be less than projected, the central bank said, as banks tapped other ways to improve their asset quality.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla, Jr. said bad loans disposed of when the SPV law expired last month probably reached P55 billion, lower than the P70-billion projection, as banks formed joint ventures with property firms and held auction sales in trimming their dud loans and idle assets.
He, however, clarified it didn’t matter how the banks disposed of their bad loans. "As long as banks dispose of [their bad loans and idle assets], that’s fine with the BSP," he told told reporters last week.
The SPV Act was passed in 2002 to allow banks to get rid of soured loans and idle assets that accumulated in the aftermath of the 1997 Asian financial crisis. The move was in line with the adoption of the Basel 2 accord that made it expensive for banks to hold on to their bad loans.
The SPV law provided incentives to banks by waiving the documentary stamp tax, capital gains tax and value-added tax requirements on the sale of distressed assets. It also halved the registration and transfer fees that are normally collected in the sale or transfer of assets.
As it was about to expire in 2005, the SPV Act was extended to May 14 this year through Republic Act 9343.
The central bank also approved Circular No. 518 in 2006, which allowed banks to enter into joint venture agreements with real estate development firms for the development of foreclosed properties.
The first SPV enabled banks to get rid of P100 billion worth of idle assets, leading to significant reduction of their NPL ratio.
Latest data from the BSP showed that the NPL ratio of universal and commercial banks dipped to 4.45% in end-December, approximating the pre-Asian financial crisis level of 4%. — Gerard S. dela Peña
___________________________________________________________________
