Weak imports pull down demand for foreign currency loans

MANILA, Philippines — Anemic demand for dollars from importers coupled with lenders' hesitation to extend credit further sank foreign currency loans granted by big local banks last year.

What's new

Banks lent out $16.7 billion under the foreign currency deposit units (FCDUs) as of December last year, down 3.6% on a quarter-on-quarter basis, the Bangko Sentral ng Pilipinas (BSP) reported Thursday.

Compared to the same period last year, FCDU lending sagged by a bigger 7.7%.

Why it matters

FCDUs are bank units authorized by the BSP to conduct transactions involving foreign currencies, mainly by accepting deposits and handing out loans. The deposited funds, in turn, help beef up the country's dollar reserves, which the government can use during hard times like the ongoing pandemic.

What BSP says

Based on the BSP's report, bank clients that used to borrow funds to import capital and consumer goods are not borrowing amid anemic consumer demand despite looser restrictions since June last year. Meanwhile, banks, afraid of getting swamped with unpaid debts, are likewise not lending.

"The decline in FCDU loans may have resulted from tightened credit standards as well as lower working capital requirements due to the economic slowdown," the central bank explained.

By the figures

• Gross disbursements amounted to $13.9 billion in December, up 13.9% quarter-on-quarter, due to "increase in funding requirements of an affiliate of a branch of a foreign bank." Similarly, loan repayments grew 12.4%.
   
• The bulk of FCDU loans came with medium to long-term maturities, with 80% due in more than one year. 
   
• Figures also showed 67% of foreign currency loans were secured by Filipinos, a big chunk of which went to local power generation companies with 17.9% share.
   
• Total foreign currency loan deposits stood at $45.1 billion as of December, down 1.9% from the preceding quarter. But year-on-year, FCDU deposit liabilities went up 9.7%.