Republic of the Philippines
HOUSE OF REPRESENTATIVES
Constitution Hills, Quezon City

NINETEENTHCONGRESS
First Regular Session

House Bill No. 3444

Introduced by: REPRESENTATIVE EDWIN L. OLIVAREZ

EXPLANATORY NOTE

One of the most damaging effects of the COVID-19 pandemic is the decline
in the economy of the country. The pandemic caused a huge halt on the
economic activities that damaged numerous businesses and industries
Considering that financial institutions play a huge part in the development of
the country, it is only necessary that this portion’s financial health be protected.

This Bill aims to extend support to financial institutions in order to be
given an avenue to improve their financial stability and in effect become channels
‘or a holistic economic upsurge for our country. Furthermore, this Bill proposes
the enactment of the Financial Institution Strategic Transfer Law which is
designed to rectify the injurious effects of the COVID-19 pandemic through
helping in their bad debt resolution and management of non-performing assets.

In view of the foregoing, the passage of this Bill is earnestly sought.

a_i

EDWIN L. OLIVAREZ



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Constitution Hills, Quezon City

NINETEENTHCONGRESS
First Regular Session

=o BASh

House Bill No.4 **

Introduced by: REPRESENTATIVE EDWIN L. OLIVAREZ

“THE PHILIPPINE BANKING INDUSTRY RESILIENCY ACT AGAINST
COVID-19 PANDEMIC”

Be it enacted in the Senate and the House of Representatives of the Republic of
the Philippines in Congress assembled:

SECTION 1. Short Title - This Act shall be known as the “Financial

Institutions Strategic Transfer (FIST) Law”.

SECTION 2. Declaration of Policy. ~\t is hereby the declared policy of

State to:

a.
b.
c

d.

a0

Develop and maintain a sound financial sector for the country;
Address the non-performing asset problems of the financial sector;
Encourage public and private sector investments in non-performing
assets;
Eliminate existing barriers in the acquisition of non-performing assets;
Help in the rehabilitation of distressed businesses with the end in view of
contributing to economic value added; and
Improve the liquidity of the financial system which can be harnessed to
propel economic growth and maintain financial stability.
SECTION 3. Definition of Terms. - For purposes of this Act, the term:
“Approval Certificate” shall mean the certificate of approval or authority
issued by the Commission to an application by a Financial Institutions
Strategic Transfer Corporation (FISTC) to issue Investment Unit
Instruments (IUIs) pursuant to the provisions of this Act.
“Approved Plan” shall mean an FISTC Plan for which an Approval
Certificate has been issued by the Commission.
“BSP” shall refer to the Bangko Sentral ng Pilipinas.
“Commission’ refers to the Securities and Exchange Commission.
“Financial Institutions or Fis” shall mean credit-granting institutions which
shall be limited to the following:

i. The BSP;

ii, A bank as defined under Republic Act No. 8791, also known

as “The General Banking Law of 2000”;


A financing house as defined under Republic Act No. 8556,
also known as “The Financing Company Act of 1998”;
iv. An investment house as defined in Presidential Decree No.
129, also known as “The Investment Houses Law”;
v. A lending company as defined under Republic Act No. 9474,
also known as “Lending Company Regulation Act of 2007”;
vi, Government financial institutions (GFls}, which for purposes
of this Act, refers to the National Home Mortgage Finance
Corporation (NHMFC), Philippine Guarantee Corporation
(PGC), Home Development Mutual Fund (HDMF), Social
Security System (SSS), Government Service Insurance System
(GSIS), Small Business Corporation (SBC), National Housing
Authority (NHA), and such other GOCCs as may be included
by the Secretary of Finance; and
vii. Other institutions licensed by the BSP to perform (i) quasi-
banking functions and (ii) credit-granting activities, including
but not limited to non-stock savings and loan associations,
pawnshops, and non-bank credit card issuers.
f. “FISTC” shall mean the Financial Institutions Strategic Transfer
Corporation created pursuant to the provisions of this Act.

g. “FISTC Plan” shall refer to the plan submitted to the Commission for its

approval as pre-requisite to the issuance of an UI.

h, “Investment Unit Instruments or IUIs” shall refer to participation
certificates, debt instruments or similar instruments issued by the FISTC and
subscribed by Permitted Investors as provided in Section 11 hereof, pursuant to
an Approved Plan: Provided, That these shall not include the instruments to be
issued by the FISTC to the selling Fls as full or partial settlement of the non-
performing assets transferred to the said FISTC: Provided, further, That such
issuances of the DISTC shall not be considered as deposit substitutes: Provided,
finally, That these shall not form part of the capital stock of FISTC.

i. “Non-Performing Assets or NPAs” shall consist of the Non-Performing Loans
and Real and Other Properties Acquired (ROPA) by Fls.

j. “Non-Performing Loans or NPLs” refer to secured or unsccured loans,
receivables, and other financial assets of similar nature, including restructured
loans, which are considered credit-impaired as defined in the Implementing
Rules and Regulations (IRR).

k. “ROPAs” shall refer to real and other properties, other than those used for
operating purposes or held for investment, acquired by an FI in settlement of
loans and receivables, including real properties, shares of stocks, and security
interest which have been acquired by way of dation in payment (dacion en pago)
or judicial or extra-judicial foreclosure or execution of judgment or enforcement
of security interest.

1. “True Sale” shall refer to a sale wherein the selling FI transfers or sells its
NPAs without recourse for cash or property to an FISTC, without prejudice to the
FI and FISTC agreeing on sharing of profits, and subject to the following results:


i. The transferor transfers full legal and beneficial title to and
relinquishes effective control over the transferred NPAs; and

ii. The transferred NPAs are legally isolated and put beyond the
reach of the transferor and its creditors:

Provided, that the transferring GI shall not have direct or indirect management
of the transferee FISTC: Provided, further, That the selling FI does not have
ownership of more than ten percent (10%) in the transferee FISTC.

SECTION 4. Financial Institutions Strategic Transfer Corporation.
- An FISTC is a stock corporation organized in accordance with Republic Act
No. 11232, otherwise known as “The Revised Corporation Code of the
Philippines,” and the rules promulgated by the Commission for purposes of
registering the FISTC: Provided, That if the FISTC will acquire land, at least sixty
percent (60%) of its outstanding capital stock shall be owned by Philippine
nationals pursuant to Republic Act No. 7042, as amended, otherwise known as
the “Foreign Investments Act”. BSP, GFIs and GOCCs may create an FISTC
subject to their respective charters and the approval of the Governance
Commission for Government Owned or Controlled Corporations: Provided, That
the limitations under Section 3(l) of this Act shall not apply to BSP and such
GFls or GOCCs.

SECTION 5. Powers of an FISTC. - An FISTC shall have the following
powers:

a. Invest in, or acquire NPAs or Fls;

b. Engage third parties to manage, operate, collect and dispose of NPAs
acquired from an FI;

c. Rent, lease, hire, subject to security interest, mortgage, transfer,
sell, exchange, usufruct, secure, securitize, collect rents and profits,
and other similar acts concerning its NPAs acquired from an Fl;

d. In case of NPLs, to restructure debt, condone debt and undertake
other restructuring related activities. In restructuring debt, the
FISTC may reduce the principal, interest rates and the period for
calculating the interest, extend the time for debt repayment or relax
the conditions for debt repayment, agree to the conversion of the
borrower’s debt to equity in the borrower’s business, agree to a
transfer of assets or claims from the borrower to repay the debt or
dispose of some of the borrower’s property or claims to third
persons;

e. Take, transfer or buy shares issued by the borrower, subject to the
provisions of the Revised Corporation Code of the Philippines in
respect of the rights of the shareholders of the borrower company,
and apply any other measures or restructuring techniques with the
approval of the Commission;


f. Enter into dation in payment (dacion en pago) arrangements,
foreclose judicially or extra-judicially and other forms of debt
settlement involving NPLs;

g. Spend funds to renovate, improve, complete or alter its NPA acquired
from an FI;

h. Issue equity or participation certificates or other forms of IUIs for
the purpose of acquiring, managing, improving and disposing of its
NPAs acquired from an Fl;

i. Borrow money and issue other instruments of indebtedness for the
purpose of paying operational and administrative costs;

j. Guarantee credit, accept or intervene for honor the bills of
borrowers;

k. Advance funds to borrowers where required by an acquired asset or
any debt restructuring agreement pursuant thereto, or under any
court order or rehabilitation plan; and

1. Engage the services of a third-party asset servicing company for the
collection and receipt of the debt payments for debts under debt
restructuring or business reorganization, management and
disposition of assets of the FISTC in accordance with the rules,
procedures and conditions prescribed by the Commission or by the
courts, Except in the case of ROPAs whose redemption periods have
already expired, the FISTC shall notify the borrower and all persons
holding prior encumbrances upon the properties or a part thereof or
are actually holding the same adversely to the borrower within
fifteen (15) days from the date of the appointment of the said
servicing company.

SECTION 6. Period for Filing of Application. - Applications for the
establishment and registration of an FISTC shall be filed with the Commission
not beyond eighteen (18) months from the date of effectivity of the IRR
promulgated pursuant to Section 23 of this Act: Provides, That the Secretary of
Finance may extend the period by a maximum of eighteen (18) months.

Entities created under Republic Act No. 9182, as amended, are qualified
to avail of the privileges and incentives under this Act, subject to compliance
with the requirements prescribed in the IRR and the regulations that may be
issued by the Commissi

SECTION 7. Capitalization of an FISTC. - An FISTC shall have
adequate minimum capitalization in such amount as may be prescribed by the
Commission.

SECTION 8. Submission of FISTC Plan. - After the establishment of an
FISTC pursuant to Section 4 hereof, an FISTC Plan shall be submitted to the
Commission for approval which shall include the following:

a. Investment policies of FISTC;


b. Contribution plan including the amounts and drafts of subscription
documents;

c. Features of the IUIs including the specific amount issued and/or to be

issued;

Rights of the holders of the IUIs;

Draft agreements for the appointment of trustees and agents with

respect to the IUIs and the NPLs acquired from an FI;

Name of the external auditor of the FISTC;

Roles and responsibilities of the trustees, advisors, loan servicers and

property managers;

Draft form of financial reports of the FISTC;

Details of distribution policies;

Methods for the increase and decrease of future fund contribution;

Methods for the alteration or modification of the approved FISTC Plan;

Methods for the liquidation and distribution of assets to the holders of

TUIs;

m. Details of credit enhancements like guarantees or standby letters of
credit or advances that may be extended to the FISTC by an entity
which shall not be the selling FI, its parent, subsidiaries or affiliates;
and

n. Such other documents or information as may be required by the
Commission.

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SECTION 9. Approval. - Upon approval of the FISTC Plan, the
Commission shall issue an Approval Certificate stating that the application has
been approved and that the IUIs may be issued.

SECTION 10. Issuance of IUIs - The FISTC may be allowed to issue IUIs
subject to the rules and regulations the Commission is herein mandated to
promulgate.

SECTION 11. Permitted Investors. - Any person may acquire or hold
IUIs in an FISTC in the minimum amount of TEN MILLION PESOS
(Php10,000,000.00): Provided, That an FISTC shall not be authorized to acquire
the IUIs of another FISTC: Provide, further, That the parent, subsidiaries,
affiliates or stockholders, directors, officers or any related interest shall not
acquire or hold, directly or indirectly, the IUIs of the FISTC that acquired the
NPAs of the FI.

SECTION 12. Notice and Manner of Transfer of Assets. -

a. No transfer of NPLs to an FISTC shall take effect unless the FI
concerned shall give prior to the borrowers of the NPLs and ail persons
holding prior encumbrances upon the assets mortgaged or subject to
security interest. Such notice shall be in writing and made in
accordance with the Rules of Civil Procedure, as amended, and the IRR,
at their last known address on file with the FI.


b. The transfer of NPAs from an FI to an FISTC shall be subject to prior
certification of eligibility as NPA by the appropriate regulatory authority
having jurisdiction over its operations which shall issue its certification
within forty-five (45) days from the date of application by the Fl for
eligibility.

c. After the sale or transfer of the NPLs, the transferring Fl shall inform
the borrower in writing at the last known address of the fact of the sale
or transfer of the NPLs.

SECTION 13. Nature of Transfer. — All sales or transfers of NPAs to an
PISTC shall be in the nature of a true sale after proper notice in accordance with
the procedure as provided for in Section 12, without need for the borrower's
consent: Provided, That GFls’ and GOCCs’ disposition of assets shall be covered
by special rules in the IRR: Provided, further. That after the sale, the FISTC shall
assume all rights and obligations of the transferring FI.

SECTION 14. Issuance of Injunctive Relief Against Transfer of
Assets. - No court, other than the Court of Appeals and the Supreme Court,
shall issue any temporary restraining order, preliminary injunction, preliminary
mandatory injunction, status quo order, stay order, commencement order, or
any other issuance of injunctive relief against the transfer of NPAs from the FI
to an FISTC, and from an FISTC to a third party, or dation in payment (dacion
en pago) by the borrower or by a third party in favor of an FI or in favor of an
FISTC, or judicial or extrajudicial foreclosure sales or execution sales of the FI
or FISTC or collateral in settlement of NPLs.

Any restraining order, injunction, status quo order, stay order,
commencement order, or any other issuance of injunctive relief issued in
violation of this section is void and of no force and effect.

The provisions of the Rules of Court on injunctions insofar as these
applicable and not inconsistent with the provisions of this Act shall govern the
issuance and dissolution of restraining orders, injunctions, status quo orders or
stay orders against said transfers.

SECTION 15. Tax Exemptions and Fee Privileges. - Any existing law to
the contrary notwithstanding, the transfer of NPAs from the Fl to an FISTC, and
from an FISTC to a third party or dation in payment (dacion en pago} by the
borrower or by a third party in favor of an FI or in favor of an FISTC shall be
exempt from the following taxes:

a. Documentary stamp tax on the abovementioned transfer of NPAs and
dation in payment (dacion en pago) as may be imposed under Title VII
of the National Internal Revenue Code of 1991, as amended by Republic
Act No. 10963, otherwise known as the Tax Reform for Acceleration an
Inclusion (TRAIN) Act;


b. Capital gains tax imposed on the transfer of lands and/or other assets
treated as capital assets as designed under Section 39(A)(1) of the
National Internal Revenue Code of 1997 as amended;

c. Creditabie withholding income taxes imposed on the transfer of land
and/or buildings treated as ordinary assets pursuant to Revenue
Regulation No. 2-98, as amended;

d. Value-added tax on the transfer of NPAs as may be imposed under Title
IV of the National Internal Revenue Code of 1997, as amended, or gross
receipts tax under Title V of the same Code, whichever is applicable
pursuant to regulations of the Bureau of Internal Revenue (BIR).

‘The abovementioned transfers shall also be subject to the following,
in lieu of the applicable fees:

i, Fifty percent (50%) of the applicable registration and transfer
of fees on the transfer of real estate mortgage and security
interest to and from the FISTC, as imposed in accordance with
the existing circulars of the Land Registration Authority
(LRA);

ii, Fifty percent (50%) of the filing fees for any foreclosure
intiated by the FISTC in relation to an NPA acquired from an
FI, as prescribed by the Rules of Court; and

iii, Fifty percent (50%) of the land registration fees prescribed
under the existing circulars of the LRA

All sales or transfers of NPAs from the Fls to an FISTC or transfers
from the Fls to an FISTC or transfers by way of dation in payment
(dacion en pago) by the borrower or by a third party to the FI shall be
entitled to the privileges enumerated herein for a period of no more
than two (2) years from the date of effectivity of the IRR: Provided, That
the Secretary of Finance may extend the period by a maximum of two
(2) years.

‘Transfers from an FISTC to a third party of NPAs acquired by the
FISTC within such two-year period, or within such extended period, or
transfers by way of dation in payment (dacion en pago) by a borrower
to the FISTC shall enjoy the privileges enumerated herein for a period
of not more than five (5) years from the date of acquisition by the
FISTC: Provided, That Secretary of Finance may extend such five-year
period by a maximum of five (5) years: Provided, further, That
properties acquired by an FISTC from GFIs or GOCCs which are
devoted to socialized or low-cost housing shall not be converted to
other uses.

‘The abovementioned tax exemptions, incentives, and fee privileges
given to Fis and FISTC at the various stages of the transactions under
this section shall likewise be extended to any individual in accordance
with the IRR: Provided, That:


i. The transaction is limited to a single family residential unit
ROPA or NPL secured by real estate mortgage on a residential
unit;

ii. There shall only be one transaction consisting of one
residential unit per individual;

iii, ‘The two-year transfer period, including its extension, and the
five-year entitlement period granted to NPA, as may be
extended by the Secretary of Finance, shall also apply to said
single family residential unit.

SECTION 16. Additional Tax Exemptions and Fee Privileges. - To
encourage the infusion of capital and/or financial assistance by the FISTC for
the purpose of rehabilitating the borrower’s business, the following additional
tax exemptions and privileges shall be enjoyed:

a. The FISTC shall be exempt from income tax on net interest income,
documentary stamp tax and mortgage registration fees on new loans in
excess of existing loans extended to borrowers with NPLs which have
been acquired by the FISTC.

b. In case of capital infusion by the FISTC to the borrower with NPLs, the
FISTC shall also be exempt from the documentary stamp tax.

Provided, That the abovementioned tax exemptions and fee privileges shall

apply for a period of not more than five (5) years from the date of acquisition of
NPLs by the FISTC: Provided, further, That the Secretary of Finance may extend
the period by a maximum of five (5) years.

SECTION 17. Privileges of Participating Fls. -

a. Any loss that is incurred by the financial institutions as a result of the
transfer of NPAs shall be treated as ordinary loss: Provided, That the
accrued interest and penalties shall not be included as loss on said loss
carry over from operations subject to the provisions of the National
Internal Revenue Code of 1997 on net operating loss carry-over
(NOLCO), except that the loss incurred by the Fl from the transfer of
NPAs within the two-year period from the effectivity of the IRR may be
carried over for a period of five (5) consecutive taxable years
immediately following the year of such loss: Provided, further, That for
purposes of corporate gain or loss carry-over shall be subject to
pertinent laws: Provided, finally, That the tax savings derived by Fis
from the NOLCO shall not be made available for dividend declaration
but shall be retained as a form of capital build-up. The BIR shall issue
the applicable rules and regulations to effectively implement the
provisions of this section.

b. The regulatory authority concerned shall promulgate the necessary
rules and regulations governing the treatment of any loss of the Fis in
the books of account as a result of the transfer of the NPAs.


c. In the case of non-bank GFIs and GOCCs enumerated in Section 3
hereof, the Department of Finance (DOF), in consultation with the
Commission on Audit (COA), shall promulgate the necessary rules and
regulations governing the treatment of any loss in their books of
account as a result of the transfer of their NPAs.

SECTION 18. Abuse of Tax Exemptions and Privileges. - Any person,
natural or juridical, who benefits from the tax exemptions and privileges herein
granted, when such person is not entitled thereto, shall be subject to the
penalties provided in Section 25 hereof. In addition, the offender shall refund to
the government double the amount of the tax exemptions and privileges availed
of under this Act, plus interest of twelve percent (12%) per annum from the date
prescribed for its payment until the full payment thereof.

SECTION 19. Consumer Protection Mechanism. ~ The FISTC shall set
up an appropriate consumer protection mechanism as may be prescribed in the
IRR issued by the appropriate regulatory authority.

SECTION 20. Redemption Periods. - The redemption periods allowed to
borrowers of banks under Section 47 of Republic Act No. 8791, also known as
“The General Banking Law of 2000”, the Rules of Court, as well as other relevant
laws for non-bank borrowers shall be applicable.

SECTION 21. Books of Accounts and Records. - The FISTC shall set
and keep accurate accounts and internal financial controls and shall appoint an
external auditor acceptable to the Commission in this regard. The Commission,
the BSP, and the BIR may look into the books of accounts and records of the
FISTC at any time.

SECTION 22. Reports. - The Commission, the regulatory authorities, and
the BIR shall prescribe the submission of reports from the FISTC and the Fls for
the proper implementation of this Act.

SECTION 23. Implementing Rules and Regulations. - Within thirty (30)
days from the effectivity of this Act, the Commission, jointly with the BSP, the
DOF, and the BIR, shall promulgate the necessary IRR for the effective
implementation of this Act: Provided, That the Commission, BSP, DOF and BIR
may issue separate regulations that will apply exclusively to the institutions
under their respective jurisdiction. In drafting their separate regulations, the
appropriate regulatory authorities may grant incentives and privileges as may
be allowed by their respective charters and by this Act.

SECTION 24. Oversight Committee. - There is hereby created an
Oversight Committee to oversee, monitor, and evaluate the implementation of
this Act. The Oversight Committee shall be composed of three (3) members each
from the House of Representatives (HOR) and from the Senate. The members of
the HOR shall come from the Committee on Banks and Financial Intermediaries


while the members of the Senate shall come from the Committee on Banks,
Financial Institutions and Currencies. The Oversight Committee shall be co-
chaired by the Chairpersons of the HOR Committee on Banks and Financial
Intermediaries and the Senate Committee on Banks, Financial Institutions and
Currencies.

SECTION 25. Primary Implementing Agency. - The Commission shall
be the primary implementing agency of this Act and for its effective
implementation, it shall have the authority to enlist the assistance of any
branch, department, bureau, office, agency or instrumentality of the
government, including GOCCs and GF Is which may include the use and transfer
of its personnel, facilities and resources.

SECTION 26. Penalties. - Any person who violates any of the provisions
of this Act, or any person who, in a registration statement, notice, certification
or plan filed under this Act, makes any untruthful statement of a material fact
or omits to state any material fact required to be stated therein, shall, upon,
conviction, suffer a fine of not less than ONE HUNDRED THOUSAND PESOS
(Php100,000.00) or not more than TWO MILLION PESOS (Php2,000,000.00) or
imprisonment of not less than six (6) years or more than twelve (12) years, or
both, at the discretion of the court, without prejudice to the penalties provided
under Section 18 hereof and other applicable laws. If the offender is a
corporation, association, partnership or any juridical person, the penalty shall
be imposed upon the responsible officers, as the case may be, who participated
in the commission of the crime or who shall have knowingly permitted or failed
to prevent its commission. If the offender is a juridical person, other than a bank
or financial institution supervised by the BSP, the court may order the
suspension or revocation of license. If the offender is an alien, he shall, in
addition to the penalties herein prescribed, be deported without further
proceedings after serving the penalties herein prescribed. If the offender is a
public official or employee, he shall, in addition to the penalties prescribed
herein, suffer absolute or temporary disqualification from government or public
office, as the case may be.

SECTION 27. Applicability Clause. - ‘The provisions of this Act shall be
applicable to assets that have become non-performing as of December 31, 2020:
Provided, That the Secretary of Finance may extend the said period by a
maximum of two (2) years.

SECTION 28. Conscience Clause. - Nothing in this Act shall be
construed to condone or exempt from any liability any person responsible for
acts or omissions constituting unsound business practices or mismanagement.

SECTION 29. Use of Registration Fees. - To carry out the purposes of
this Act, the Commission shall retain and use all fees paid to it relative to the



establishment of an FISTC in addition to its annual budget and to what is
provided for under Section 75 of the Securities Regulation Code.

SECTION 30. Separability Clause. - If any provision of this Act is held
unconstitutional or invalid, all other provisions not affected thereby shall remain
valid.

SECTION 31. Repealing Clause. - Republic Act No. 9182, as amended
by Republic Act No. 9343, otherwise known as The Special Purpose Vehicle
(SPV) Act of 2002,” is hereby repealed. All laws, decrees, executive orders, rules
and regulations or part thereof, which are inconsistent with this Act, are hereby
repealed, amended or modified accordingly.

SECTION 32. Effectivity. - This Act shall take effect immediately upon
its publication in the Official Gazette or in a newspaper of general circulation.

Approved,