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Opinion

Diokno’s FIST law gives Philippine banks a boost, but do they need it?

The ‘bad bank’ asset management company recently launched in the Philippines has not just been designed to make life easier for the banks, it could boost growth as well.

Chris Wright on Asia 1920px.jpg

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
Benjamin Diokno, Bangko Sentral ng Pilipinas
Diokno_780

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


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