Benjamin Diokno, governor of Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, hopes that a new law to create ‘bad bank’ asset management companies will reduce non-performing loan (NPL) ratios in the Philippines and stabilize a system shocked by Covid-19.
It is a move with a lot of historical precedent in Asia, but is it necessary?
The Financial Institutions Strategic Transfer (FIST) Act was signed by president Rodrigo Duterte on February 16, and a period of consultation on its implementing rules and regulations concluded on February 25.
It allows for the establishment of FIST corporations – basically, asset management companies commonly known as bad banks – which are authorized to acquire non-performing assets (NPAs) from financial institutions.
This allows the banks to strengthen their balance sheets during a time of financial system stress brought about by the Covid-19 pandemic.
This time, we passed the same law, but stronger in provisions, in the year of the crisis itself
Specifically, BSP says the Act is expected to do three things: save banks from incurring costs on the administration of NPAs; increase liquidity within the banking system that would otherwise be tied up with bad debts; and free up bank capital, allowing banks to tolerate more risk and therefore expand their investment and lending.
There
