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PDIC readies plan to help banks dispose of bad loans |
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(December 02, 2003 Tuesday - Philippine Daily Inquirer pp.b4, Business Section)
STATE-OWNED Philippine Deposit Insurance Corp. (PDIC) wants to set up a program involving the take-out of billions of pesos' worth of non-performing assets -- bad loans and foreclosed or acquired property -- of troubled banks, PDIC president Ricardo Tan said. |
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Despite the enactment of the Special Purpose Vehicle Act earlier this year, no bank has entered into a major transaction eligible for tax and other incentives provided by the law because of the large losses banks will have to book if they agree to sell the assets at the 15-25 percent price range quoted by foreign investment firms.
The bad assets have dragged down the profitability of banks and constrained lending. "We have certain powers which the other entities do not have and we're trying to conceptualize how we can contribute to the reduction of the banking system's NPAs with some funding arrangements with BSP," Tan said in an interview last week. No concrete scheme has been drawn up yet but Tan said the ideas being floated included the PDIC providing cash of up to 80 percent of the value of non-performing assets (NPAs) to be sold. "We give them the money to get income support (for the NPAs) and they assign us government securities and we pay back the BSP," Tan said. Eventually, PDIC would also be repaid by the bank as well, he added. Tan earlier said that PDIC was open to ideas and was soliciting suggestions on how PDIC could help the banks dispose of their NPAs, given the provisions of the SPV law and the government financial institution's own charter. The charter limits banks eligible for financial assistance to those deemed in danger of shutting down. PDIC guidelines define such banks as those having serious liquidity problems and a capital-to-risk asset ratio of four to seven percent but with indication it might fall below four percent in six to 12 months. Tan also said that any scheme would have to take into account "burden-sharing" between the bank and PDIC, and that PDIC assistance should be less expensive than the costs PDIC would incur if the bank were placed under receivership. As of end-June, the country's over 900 banks had past due loans and loans under litigation totaling about 305 billion pesos and real and other property owned or acquired amounting to 225 billion pesos. home | latest news |
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