Republic of the Philippines
House of Representatives
Quezon City

EIGHTEENTH CONGRESS
Second Regular Session

House Bill No.__ 6977

Introduced by REPRESENTATIVE ERIC 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 their 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 for 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 by assisting in the resolution of their bad debt and management
of non-performing assets.

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

Oydaty

ERIC OLIVAREZ


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Republic of the Philippines
House of Representatives
Quezon City

EIGHTEENTH CONGRESS
Second Regular Session

House Bill No. 8977

Introduced by REPRESENTATIVE ERIC 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. — \tis hereby the declared policy

of State to:

a.
b.
c.

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


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. 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

(SEC).

. “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”;

iii. 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”;

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 government-owned

vi.


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and controlled corporations 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 IUI.

h. “Investment Unit Instruments or /UIs” 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 Fis as full or partial settlement of the non-
performing assets transferred to the said FISTC:

Provided, further, that such issuances of the FISTC 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 unsecured 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. “Real and Other Properties Acquired or 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


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extra-judicial foreclosure or execution of judgment or enforcement of security
interest.

|. “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 Fl and FISTC agreeing on sharing of profits and subject to the following
results:

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

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

Provided, That the transferring FI shall not have direct or indirect
management of the transferee FISTC:

Provided, further, That the selling Fl does not have ownership of more
than ten percent (10%) in the transferee FISTC.

SECTION 4, Financial Institutions Strategic Transfer Corporation
(FISTC). - 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, GFls 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, further, that the limitations under Section 3(\) 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;


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

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;

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, and 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;

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;

. Enter into dation in payment (dacion en pago) arrangements,

foreclose, judicially or extra-judicially, and other forms of debt
settlement involving NPLs;

. Spend funds to renovate, improve, complete, or alter its NPA

acquired from an Fl;

. Issue equity or participation certificates or other forms of IUls for

the purpose of acquiring, managing, improving and disposing of
its NPAs acquired from an FI;

. Borrow money and issue other instruments of indebtedness for

the purpose of paying operational and administrative costs;

. Guarantee credit and accept or intervene for honor the bills of

borrowers;


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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

|. 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:

Provided, 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 Commission.

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

d. Rights of the holders of the IUIs;

e. Draft agreements for the appointment of trustees and agents with
respect to the IUIs and the NPLs acquired from an FI;

f. Name of the external auditor of the FISTC;

g. Roles and responsibilities of the trustees, advisors, loan servicers
and property managers;

h. Draft form of financial reports of the FISTC;
i. Details of distribution policies;
j. Methods for the increase and decrease of future fund contribution;

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

|. Methods for the liquidation and distribution of assets to the holders
of IUls;

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 Fl, its parent, subsidiaries or affiliates;
and

. 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
lUIs subject to the rules and regulations the Commission is herein mandated

to promulgate.


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SECTION 11. Permitted Investors. - Any person may acquire or hold
lUls 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 IUls 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 notice to the borrowers of the NPLs and
all 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 Fl.

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 FI for eligibility.

c. After the sale or transfer of the NPLs, the transferring FI 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 FISTC 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 the special rules in the IRR.

Provided, further, that after the sale, the FISTC shall assume all rights
and obligations of the transferring Fl.


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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 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, or judicial or extrajudicial foreclosure
sales or execution sales of the Fl 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
are 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 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 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. Creditable 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;


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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:

5 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
initiated 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 Fis 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 GFls
or GOCCs which are devoted to socialized or low-cost housing
shall not be converted to other uses.


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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 Fis. —

a. Any loss that is incurred by the FI as a result of the transfer of NPAs
shall be treated as ordinary loss:


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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,
the 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 GFls 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 26 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 Fis for the proper implementation of this Act.

SECTION 23./mplementing 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


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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 GFls 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.


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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.