FCDU outstanding loans declined in the first quarter

LOANS issued by foreign currency bank deposit units (FCDUs) declined in the first quarter of 2023 as principal repayments exceeded repayments, Bangko Sentral ng Pilipinas (BSP) reported on Friday.

The central bank said in a statement that FCDU loans stood at $15.5 billion at the end of March, down 2.1% from the $15.8 billion registered at the end of December last year.

BSP attributed the decline to tightening lending standards by lending banks due to reduced risk tolerance and uncertain economic outlook, reduced demand for FCDU loans from resident exporters, exchange rate volatility and rising borrowing costs, and the availability of other sources of funding.

On an annualized basis, outstanding FCDU loans fell 3.2 percent to $507 million from $16.0 billion in March 2022.

Meanwhile, as of the end of March, the maturity profile of FCDU’s loan portfolio remained predominantly medium-to-long-term, accounting for the bulk of 78.4 percent, up slightly from the 78.3 percent recorded in the fourth quarter.

Loans extended to residents reached US$9.4 billion, representing 60.7 percent of total FCDU loans, which were mainly provided to generators (US$2.4 billion or 26.1 percent); exporters of goods and services ($2.3 billion or 25.0%); and towing, tank truck, trucking, personnel and other industries ($1.2 billion or 12.6 percent).

In the first quarter of this year, gross disbursements reached US$17.0 billion, up 20.2 percent from the US$14.2 billion recorded in the previous quarter, due to an increase in foreign bank branch financing needs.

Loan payments rose to $17.4 billion, up 23.4% from $14.1 billion in the fourth quarter of 2022, resulting in full principal repayments.

FCDU deposit liabilities reached a record high of $48.7 billion at the end of March 2023, up $879 million, or 1.8 percent, from $47.8 billion at the end of December 2022.

“Most of these deposits ($47.5 billion or 97.4%) were still owned by residents, essentially providing an additional buffer to the country’s gross international reserves,” the BSP said in a statement.

FCDU deposit liabilities rose $2.4 billion, or 5.2 percent, year-on-year from $46.3 billion at the end of March 2022.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the decline in FCDU loans was due to currency risks.

“As a matter of caution, given the more than 9 percent depreciation of the peso against the US dollar since 2022, the lessons of past crisis periods over the years are adding to principal payments on top of interest payments,” Ricafort said.

“Thus, lenders are also becoming more wary of currency (foreign exchange) risks, unless FCDU borrowers are hedged or earn in US dollars or foreign currencies,” he added.