February 23, 2021 | 5:12 pm
MANILA, Philippines – The search for irregularities in loans to the Lopez family, which were sold at a discount by the State Development Bank of the Philippines (DBP), took an interesting turn in the direction of criticism of one of the Duterte administration’s overriding laws.
Allies in the House of President Rodrigo Duterte themselves pointed to risks that the Strategic Financial Institutions Transfer Act (FIST) could be misused by banks and large corporations allegedly trying to offload bad debt at the government’s expense.
“The FIST law, and it’s frightening, may again violate the SPV law,” said Mike Defensor, the Anakalusugan party list representative, at the hearing on Tuesday.
Deputy House Speaker Crispin Remulla of Cavite agreed with Defensor. “My concerns with FIST are simple: banks aggressively go after small borrowers. Unfortunately, this FIST law will be easy for companies, ”he said.
“But the effects of this move will not be felt by retail banking,” he added.
Criticisms of FIST, enacted as Republic Act (RA) No. 11523 last week, highlighted an unusual development at the House Blue Ribbon Committee hearing when members reached for straws to denounce misconduct in the sale of Lopez loans in the To show a value of 1.67 billion pesos. A brownout before noon caused the hearing to suspend the proceedings.
The reference to FIST was by no means unexpected. After all, FIST was modeled on RA No. 9182 or the Special Purpose Vehicle Act of 2002. Both laws provide the legal basis for lenders to sell bad assets off their balance sheets and then invest the funds generated or use loans back to consumers whose spending sustains the economy.
In terms of components, the similarity of FIST to SPV cannot be denied either. Both laws offer tax incentives for asset transfers, the formation of FIST companies also reflects SPVs requiring approval, and unpaid loans and property purchases can be legally dumped onto these vehicles by banks.
However, for at least the last two hearings, lawmakers have tried to navigate cautiously to prove that the previous SPV law was abused and to isolate FIST as an expanded version of that old law. On Tuesday these efforts appeared to have failed and the committee turned its sights on FIST.
“How the FIST law will be applicable to large corporations in particular has yet to be determined. I hope this does not happen again in the transactions we implement, ”said Zamboanga Rep. Cesar Jimenez.
“It appears that the application of the law is being disregarded for some transactions,” he added.
How FIST’s inclusion in the hearing will affect investor acceptance of the law remains uncertain, but investors typically shy away from controversy. However, FIST’s success is critical to recovery: economic managers want banks to turn contaminated assets into these vehicles so that capital can be lent to cover losses instead. But the practice itself had been placed under public scrutiny.
Governor Benjamin Diokno from Bangko Sentral ng Pilipinas (BSP) did not respond to the request for comment.
DBP should have waited?
At Tuesday’s hearing, lawmakers circled back and forth on their main line of argument about SPVs: By selling the Lopez loans to the now-collapsed Lehman Brothers at a cheaper price in 2006, the government made losses because DBP did not get the full value of the loan got back.
However, DBP officials repeatedly argued that had it not been for the sale of the bank, there would have been major liquidity problems that would have put the lender and its customers in greater trouble. “That’s why I said at the time that the BSP, hoping to protect the banks and keep business going, announced the SPV,” DBP President Emmanuel Herbosa told lawmakers.
“What could have been garbage, we were able to recover 64%. For me, DBP did the right thing and all the other banks did the right thing because of the law that allowed us to reclaim something and that’s 64%, ”he pointed out.
Indeed, Defensor went so far as to say that if DBP had waited “3 to 4 years,” the time Lehman Brothers spent collecting the loans it sold, the government would have been able to make all loan payments . However, Herbosa said it was not an option, adding that a similar scenario of banks with soaring bad loans is currently emerging due to the health crisis.
“We are seeing a repeat of this pandemic,” said Herbosa.