Press Release
February 13, 2008

Providing foreign banks with foreclosure rights will create
more credit for SMEs- Angara

"Foreign banks do not provide credit to many small and medium enterprises (SMEs) because of limits on their foreclosure rights."

In a bicameral conference committee on the Magna Carta for Micro, Small and Medium Enterprises bills, Senator Edgardo J. Angara proposed an amendment that will allow foreign banks in the country to participate in the bidding process at the auction of foreclosed properties to enable them to lend more credit to SMEs.

"Some banks, especially big banks, do not extend loans to SMEs because they cannot participate in the bidding process of foreclosed properties," he stressed.

"The introduced amendment will allow fair and equitable auction processes and disposition rights to enable foreign banks to effectively secure loans with real estate properties. The result will be more credit for a broader segment of the economy."

He pointed out that the current foreclosure procedures under Philippine law are excessively restrictive for foreign banks and have consequently discouraged lending to SMEs.

The Republic Act 133 or the Mortgage of Private Real Property Act prohibits foreign banks from participating in the bidding process at the auction of foreclosed properties and from taking part in the sale of mortgaged real property in the case of judicial or extrajudicial foreclosure. "Because of these limitations, foreign banks have not been active in lending to SMEs."

"Lending institutions which are not qualified to acquire or hold lands of the public domain in the country shall be permitted to bid and take part in sales of mortgaged real property in case of judicial or extra-judicial foreclosure, as well as avail of receivership, enforcement and other proceedings, solely upon default of a borrower, and for a period not exceeding five years from actual possession, provided that in no event shall title to the property be transferred to such lending institution," he said.

"If the lending institution is the winning bidder, it may, during said five year period, transfer its rights to a qualified Philippine national, without prejudice to a borrower's rights under applicable laws," he added.

According to Angara, this provision will improve the access to credit for SMEs as well as reducing its cost. "Similar provisions are followed in Thailand, which also restricts foreign corporate ownership of land, resulting in improved credit availability for SMEs, especially in rural areas."

The Magna Carta for SME Amendments seeks to amend Republic Act 6977, otherwise known as the Magna Carta for Small Enterprises to enable small businesses of a continued mandatory bank credit allocation.

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