By Eduardo L. De Mesa, Jr.

Republic Act (RA) No. 11523, otherwise known as the Financial Strategic Transfer Act or the FIST Act [1], was recently enacted on February 16, 2021. This law aims to aid in the country’s economic recovery from the dire effects of the COVID-19 pandemic by allowing the transfer of non-performing assets of Financial Institutions to Financial Institutions Strategic Transfer Corporations (FIST Corporations). This in turn frees up liquidity of the Financial Institutions such as banks to enable them to maintain their financial health and cushion the adverse economic impact of COVID-19.[2]

This statute essentially enables banks and other financial institutions to sell bad and non-performing loans to asset management companies to be known as Financial Institutions Strategic Transfer Corporation (FIST Corporation). The FIST Corporations will then manage, operate, collect, and dispose of non-performing assets acquired from a financial institution. As a result, the banks and financial institutions can then continue to increase and provide lending activities to borrowers to help improve economic and business activity.

The policy of the State adopted in this law is to:

  1. Develop and maintain a sound financial sector;
  2. Address the non-performing asset problems of the financial sector;
  3. Encourage private sector investments in non-performing assets;
  4. Eliminate existing barriers in the acquisition of non-performing assets;
  5. Help in the rehabilitation of distressed businesses with the end in view of their becoming economic value-added contributors; and
  6. Improve the liquidity of the financial system which can be harnessed to propel economic growth and maintain financial stability.

Who are beneficiaries of the FIST Act?

In referring to Financial Institutions, the FIST Act defines the term as credit-granting institutions which the law limits to the following:

  1. Bangko Sentral ng Pilipinas (BSP);
  2. Banks as defined under R.A. No. 8791 (The General Banking Law of 2000);
  3. Financing companies defined under R.A. No. 8556 (The Financing Company Act of 1998);
  4. Investment houses defined in P.D. No. 129 (The Investment Houses Law;
  5. Lending companies defined in R.A. No. 9474 (Lending Company Regulation Act of 2007);
  6. Accredited Microfinance nongovernment organizations (NGOs) defined under R.A. No. 10693 (Microfinance NGOs Act);
  7. Insurance companies defined in P.D. No. 612 (Insurance Code);
  8. Government financial institutions (GFIs) ;
  9. Government-owned or controlled corporations (GOCCs); and
  10. Other institutions licensed by the BSP to perform quasi banking functions and credit-granting activities including but not limited to, non-stock savings and loan associations, and nonbank credit card issuers;[3]

Who may be considered a FIST Corporation?

As defined in the FIST Act, a Financial Institutions Strategic Transfer Corporation (FIST Corporation) is a stock corporation organized in accordance with R.A. No. 11232 (The Revised Corporation Code of the Philippines). It cannot be incorporated as a one person corporation.

A corporation intending to become a FIST Corporation should first apply and register with the Securities and Exchange Commission (SEC) within 36 months from the effectivity of the FIST Act. It should have a minimum capitalization of P500,000,000.00 with a minimum subscribed capital of P125,000,000.00, and a minimum paid-up capital of P31,125,000.00. Where land and foreign equity participation are concerned, the FISTC shall comply with the provisions of the Constitution and the minimum capital requirements in accordance with The Foreign Investments Act[4]. Entities created under R.A. NO. 9182, as amended, otherwise known as “The Special Purpose Vehicle (SPV) Act of 2002”, are also qualified to avail of the privileges and incentives under the FIST Act. [5]

The FIST Corporation substitutes the Financial Institution in its rights over the Non-Performing Assets (NPA), Non-Performing Loans (NPL), and Real and Other Properties Acquired (ROPA) and is authorized to sell and distribute Investment Unit Instruments (IUIs). IUIs refer to the participation certificate, debt instrument or similar instrument issued by the FIST Corporation and may be subscribed to by Permitted Investors under this Act.[6]

Permitted Investors are banks, registered investment houses, insurance companies, pension funds or retirement plans maintained by the Government or any political subdivision or managed by a bank or other persons authorized by the BSP, investment companies, or such other persons as the SEC may allow.[7] Permitted Investors may acquire or hold IUIs in a FIST Corporation with a minimum amount of P10,000,000.00. However, a FIST Corporation shall not be authorized to acquire the IUIs of another FIST Corporation. Also, the parent, subsidiaries, affiliates or stockholders, directors, officers or any related interest of the selling Financial Institution or the parent’s subsidiaries, affiliates or stockholders, directors, officers or any related interest shall also not hold, directly or indirectly, the IUIs of the FIST Corporation that acquired the non-performing assets of the Financial Institution. [8]

In sum, the FIST Corporation gains the right to do all acts for the enforcement of those rights and collect payment for the assets, loans and properties. However, the FIST Act only applies to assets that have become non-performing as of December 31, 2022.[9]

Further, a FIST Corporation may engage the services of a third-party asset servicing company for the collection and receipt of debt payments. However, it should notify the borrower and all persons holding prior encumbrance upon the properties or are actually holding the same adversely against the borrower of the appointment of a third-party asset servicing company within 15 days from appointment.[10]

The FISTC Plan

Within the period prescribed by the SEC, a FISTC Plan shall be submitted to it by the FIST Corporation for its approval before it may operate as such. The FISTC Plan shall include the following:

  1. Investment policies of the FISTC;
  2. Contribution plan including the amounts and draft of subscription documents;
  3. Features of the IUIs, including specific amounts issued and to be issued;
  4. Rights of the holders of IUIs;
  5. Draft agreements for the appointment of trustees and agents with respect to the IUIs and the NPLs acquired from a financial institution;
  6. Name of the external auditor of the FISTC;
  7. Roles and responsibilities of the trustees, advisors, loan servicers and property managers;
  8. Draft form of financial reports of the FISTC;
  9. Details of distribution policies;
  10. Methods for the increase and decrease of future fund contribution;
  11. Methods for the alteration or modification of the approved FISTC Plan;
  12. Methods for the liquidation and distribution of assets to the holders of IUIs;
  13. 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 financial institution, its parent, subsidiaries or affiliates; and
  14. Such other documents or information as may be required by the SEC.

The SEC may approve, reject, suspend or revoke the FISTC Plan.

If the plan is approved, the SEC shall issue an Approval Certificate stating that the FISTC Plan has been rendered effective and the sale and distribution of IUIs covered by such plan has been authorized. The SEC may also amend an approved FISTC Plan if the plan, on its face, becomes incomplete or inaccurate in any material respect upon the request of concerned parties or on its own determination.

On the other hand, the SEC may also suspend or revoke the effectivity of an approved plan after due notice and hearing for the following causes:

  1. The FIST Corporation violation of the Act or order of the SEC of which it has been duly notified of;
  2. The FIST Corporation has been, or is engaged, or is about to engage in fraudulent transactions;
  3. The FIST Corporation has made any false or misleading representation of material facts in any Approved Plan concerning the FIST Corporation or its IUIs;
  4. The FIST Corporation has failed to comply with any requirement that the SEC may impose as a condition for the issuance of IUI for which the FIST Corporation has been filed; or
  5. The FISTC Plan is, on its face, incomplete or inaccurate in any material respect, or includes any untrue statement of a material fact, or omits to state a material fact required to be stated, or one which is necessary to obviate any misappreciation of the statements therein.[11]

Transfer of Assets to FIST Corporation

The FIST Act provides that no transfer of NPLs to a FIST Corporation shall take effect unless the financial institution concerned shall give prior notice to the borrowers of the NPLs, and those with encumbrances upon the assets mortgaged or subject to security interest. Upon receipt of the notice, the borrow shall have at most 30 days to restructure or renegotiate the loan under such terms and conditions as may be agreed upon by the borrower and the financial institution concerned.[12]

As for transfer of NPAs from a financial institution to a FIST Corporation, it should be subject to prior Certification of Eligibility as NPAs by the appropriate regulatory authority having jurisdiction over its operations.[13]  The borrower or owner of the NPA from the FIST Corporation or its subsequent transferee shall have a right of redemption in the periods as provided for in The General Banking Law of 2000[14] and the Rules of Court.[15] The transfer shall be in the nature of a true sale.[16]

No court, other than the Court of Appeals and the Supreme Court, may issue injunctive relief against transfer of assets shall issue against the transfer of NPAs from a financial institution to a FIST Corporation, and from a FIST corporation to a third party. No injunctive relief may also be issued to dation in payment by the borrower or by a third party in favor of an financial institution or FIST Corporation, or judicial or extrajudicial foreclosure of sales or execution of sales of the financial institution or FIST corporation of collateral in settlement of NPAs. Any injunctive relief issued by lower courts is void and of no force and effect.[17]

Incentives and Exemption Privileges

The FIST Act enumerates several incentives and privileges which FIST Corporations may enjoy.

Transfer of NPAs from a Financial Institution to a FIST Corporation, and from a FIST Corporation to a third party, or dation in payment by the borrower or by a third party in favor of an Financial Institution or FIST Corporation shall be exempt from a) documentary stamp tax, b) capital gains tax, c) creditable withholding income taxes, and d) value-added tax.

The following fees shall, however, still be due in reduced amounts:

  1. 50% of the applicable registration and register fees on the transfer of real estate mortgage and security interest to and from the FIST Corporation
  2. 50% of the filing fees for any foreclosure initiated by the FIST Corporation in relation to any NPA acquired from a financial institution; and
  3. 50% of the land registration fees.

The above incentives may be enjoyed for a period not more than 2 years from date of effectivity of the FIST Act. This period becomes 5 years if the transfer is made from a FIST Corporation to a third party.

The tax exemptions, incentives, and fee privileges may also be extended to any individual provided that:

  1. The transaction is limited to a ROPA that is either a single family residential unit or an empty lot, or to NPL secured by a real estate mortgage on a residential unit or an empty lot;
  2. There shall only be 1 transaction consisting of 1 residential unit or empty lot per individual; and
  3. The 2 and 5 year periods granted to NPAs shall also apply to single family residential units or empty lots.[18]

Additional Tax Incentives

In order to encourage the infusion of additional capital and financial assistance by FIST Corporations for the purpose of rehabilitating the borrower, they shall also enjoy the following tax exemptions and privileges for a period of 5 years from the date of acquisitions of NPLs:

  1. The FIST Corporation shall be exempt from income tax on net interest income, documentary stamp tax and mortgage registration fees and new loans in excess of existing loans extended to borrowers with NPLs which have been acquired by the FIST Corporation; and
  2. In capital infusion by the FIST Corporation to the borrower with NPLs, the FIST Corporation shall also be exempt from documentary stamp tax.[19]

Further, any loss incurred by a financial institution as result of the transfer of an NPA within a 2 year period from this Act shall be treated as ordinary loss. Accrued interest and penalties shall not be indicated as loan on said loss carry-over from operations subject to the provisions of the NIRC of 1997 on NOLCO. The loss may be carried over for a period of 5 consecutive taxable years immediately following the year of loss.[20]

When a person, natural or juridical, benefits from the tax exemptions and privileges of the FIST Act when not entitled to shall be subject to penalties found in Section 24 and 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 year from the date prescribed for its payment until full payment thereof.[21]


In the FIST Act, certain acts may be penalized by the courts or the SEC.

Courts, after conviction, may impose upon any person who violates the provisions of the FIST Act or made untruthful statements or omissions in any notice, certification or plan filed under it shall be subject to a fine of not less than P100,000.00 or more than P2,000,000.00, or imprisonment of not less than 6 years nor more than 12 years, or both. The penalties under the FIST Act shall be without prejudice to the penalties under the Central Bank Act.[22]

As for the SEC, it may penalize an offender which is a juridical person administrative sanction upon the corporation and its officers for violations of the FIST Act, or untruthful statements in any written document required by law to be filed with the SEC. The administrative sanctions it may impose include:

  1. Suspension or revocation of any approved FISTC Plan for the offering of IUIs;
  2. Fine of no less than P10,000.00 nor more than P1,000,000.00 plus not more than P2,000.00 for each day of continuing violation, or in such amounts as may be prescribed by the SEC, and
  3. Other penalties within the power of the SEC to impose.

Accounting and Reporting

The FIST Corporation is required to keep accurate accounts and internal financial controls and shall appoint an external auditor that is acceptable to the SEC. The SEC, the BSP, and BIR may look into the books of accounts and records of the FIST Corporation at reasonable hours on business days after due notice.[23]

Further, the SEC, BIR and other regulatory authorities shall prescribe the submission of reports from the FIST Corporation and the financial institutions for the proper implementation of the FIST Act.

Implementing Rules and Regulations

The SEC, jointly with the BSP, DOF, BIR and LRA are tasked to promulgate the necessary rules and regulations for the effective and faithful implementation of the FIST Act. Further, the DOF, upon recommendation of the BIR, shall promulgate the revenue regulations implementing the fiscal incentives under the FIST Act. The law specifically states that even if the Implementing rules and regulations are not promulgated, the law shall still be effective.

[1] Section 1

[2] Section 2

[3] Section 3 (e)

[4] R.A. No. 7042

[5] Paragraph 2, Section 6

[6] Section 3 (g)

[7] Section 10.1(l) of R.A No. 8799

[8] Section 11

[9] Section 25

[10] Section 5 (m)

[11] Section 9 (c)

[12] Section 12 (a)

[13] Section 12 (b)

[14] Act No. 3135

[15] Section 12 (c)

[16] Section 13

[17] Section 14

[18] Section 15

[19] Section 16

[20] Section 17

[21] Section 17

[22] Section 17 and 18 of R.A. No. 7653

[23] Section 21




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