Weak demand for loans seen in banks' foreign units, too

MANILA, Philippines — Foreign currency loans granted by large local banks sagged quarter-on-quarter in June amid anemic demand for dollars as businesses struggle to recover from pandemic-led lockdowns.

Banks lent out $18 billion under the foreign currency deposit units (FCDUs) as of June, 1.7% lower than $18.3 billion worth of loans by the end of March, the Bangko Sentral ng Pilipinas (BSP) reported on Wednesday.

FCDUs are bank units authorized by the central bank to conduct transactions involving foreign currencies, mainly by accepting deposits and handing out loans. Compared to the same period last year however, FCDU loans increased by 2.8%. 

"The slowdown in FCDU lending may be due to lower customer inventory financing needs and working capital requirements as the ongoing health crisis continued to constrain domestic economic activity," the BSP said.

Sought for comment, Jun Neri, lead economist at Bank of the Philippine Island (BPI), agreed with the central bank's assessment. "We suspect that most bank clients that used to borrow to import both capital and consumer goods have postponed their plans during the height of the quarantine measures," Neri said in an email.

"Our own estimate is that merchandise imports will be declining by as much as $25 billion this year from about $110 billion annual import bill in 2019," he added.

Total disbursements hit $11.2 billion as of end-June, down 21.3% from the previous quarter "due to the decrease in funding requirements of an affiliate of a branch of a foreign bank," the BSP reported. 

The bulk of FCDU loans came with medium to long-term maturities, with 79.9% due in more than one year. During the period, loan repayments were lower by 17.4% quarter-on-quarter, figures showed.

Over 64.3% of foreign currency loans were secured by Filipinos, a big chunk of which went to local power generation companies with 18.4% share. The rest were cornered by local businesses engaged in merchandise and service export (15.1%); public utility (7.3%); management/holding and stock brokerage (5.8%); and towing, tanker, trucking, forwarding, personal and other industries (5.6%). 

Meanwhile, total foreign currency loan deposits stood at $43.6 billion as of end-June, up by 1% from the previous quarter. According to the central bank, these funds help beef up the country's dollar reserves, which the government can use during hard times.

"FCDU lending should have bounced back in 3Q, however, as the economy reopened purchase of consumers goods and raw material for manufacturing from abroad started to pick up," BPI's Neri said.

"As long as the economy is able to sustain the easing of quarantine restrictions, a noticeable rebound in FCDU loans are likely to be seen in early 2021 too," he added.