Market Event

Pres. Duterte signed the FIST Act into law, allowing financial institutions to sell non-performing loans (NPLs) to asset management companies.

Opinion

Looking back to the SPV Act of 2002 (post-Asian Financial Crisis), non-performing assets (NPAs) sold under the said act reached P146 Billion or ~20% of total industry NPAs. While not as big as expected, the reduction of non-performing loans (NPLs) from the peak of 22% in May 2002 to 8% by 2005 can be partly attributed to success of the SPV Act.

On the other hand, NPL ratio as of end Dec-2020 is at 3.6%, and is expected to peak at 5-6% this year. As NPLs were actually lower than the BSP expectations and with vaccine distribution underway, we may see banks leaning more towards loan restructurings vs. availing FIST incentives as NPAs are usually sold at a deep discount for the latter. In any case, the passage of FIST will still lead to improve in sentiment for the sector as this will provide banks more confidence to lend.

We remain partial to BDO (Target Price: P125.00) and MBT (Target Price: P53), while also seeing SECB (Target Price: P143) as possible beneficiary due to it having one of the highest NPL ratios.

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