MANILA The Philippines wants to set up an agency to absorb bad bank loans as part of an effort to restructure the country's financial system to spur economic growth, officials said Wednesday.

The cash-rich, state-run pension fund for the private sector is preparing the groundwork to set up the agency, which has won initial support from President Gloria Arroyo and top finance officials.

"Basically, it is a systemic solution to the problem of bad loans and under capitalization in the Philippine financial system," social security system chairman Vitaliano Nanagas told AFP.

Following the 1997 financial crisis which plunged Southeast Asia into recession, Malaysia, Indonesia and Thailand set up agencies to buy back nonperforming loans of banks or other financial assets gone sour.

Nanagas said the Philippine agency would not be a carbon copy of its regional counterparts and would have "its own local flavor."

The Philippines was among the least hit by the financial crisis but nonperforming loans remain a headache for the Authorities which have to also contend with under-capitalized financial institutions.

About 15 percent of the total loan portfolio of Philippine banks is deemed nonperforming.

Setting up an agency to tackle such loans was "urgent for the Philippines -- which is why we are rushing the presentation," Nanagas said ahead of submitting the framework of the proposed agency to the Arroyo administration and the Central Bank.

"She (Arroyo) has seen this. She knows about it. I have talked to her informally about this. That is what emboldens me to present it now," Nanagas said.

Central Bank Governor Rafael Buenaventura said such an agency was "something that we really should consider.

"It's something that Thailand did, something Malaysia did, and even Indonesia did ... put it in one pot and try to collect from them," he said.

Although the Philippine banking system is regarded as sound compared with others in the region, "the fact remains that the economy will not grow unless massive amounts of capital are poured into the financial system and unless we restructure the financial system," Nanagas said.

The Bankers Association of the Philippines, an umbrella grouping of commercial banks, is to launch a fixed-income exchange soon to help check the nonperforming loan problem, officials said.

Johnny Ravalo, the association's chief economist, told AFP that the exchange itself would help financial institutions "create additional liquidity."

"The tradibilities' feature therefore allows assets traditionally booked as nonperforming in the banking system to move forward rather than just being statically classified as nonperforming," he said.

Ravalo said that while the nonperforming loan issue needed to be addressed quickly, he did not see it as a systemic problem.

He said that compared with its Southeast Asian neighbors, the Philippines has among the lowest nonperforming loans ratio relative to capital adequacy.

"This means that relative to our ability to fund the problem, we suffer the smallest headache," he said.