Low imports mean low take-up of foreign bank loans in Q3

MANILA, Philippines — Weak demand for dollars and stricter credit rules further sank foreign currency loans granted by large local banks in the third quarter, as prolonged coronavirus restrictions continued to sap economic activity.

Banks lent out $17.3 billion under the foreign currency deposit units (FCDUs) as of September, 3.9% lower than $18 billion worth of loans handed our at the end of June, the Bangko Sentral ng Pilipinas (BSP) reported Tuesday.

FCDUs are bank units authorized by the BSP to conduct transactions involving foreign currencies, mainly by accepting deposits and handing out loans. Compared to the same period last year, FCDU loans sagged 3.1%. 

Based on the BSP's report, bank clients that used to borrow funds to import capital and consumer goods are not borrowing amid anemic demand 3 months since restrictions were relaxed in June. Meanwhile, banks, afraid of getting swamped with unpaid debts, are likewise not lending.

"The decline in FCDU lending may be due to borrowing firms’ lower working capital requirements and lending banks’ tightening of credit standards attributed largely to less favorable economic outlook," the central bank explained.

On the flip side, data showed gross disbursements went up 8.6% quarter-on-quarter in September to $12.2 billion "due to the increase in funding requirements of an affiliate of a branch of a foreign bank," the BSP said.

The bulk of FCDU loans came with medium to long-term maturities, with 79.6% due in more than one year. During the period, loan repayments were higher by 11.9% quarter-on-quarter.

Figures also showed 65% of foreign currency loans were secured by Filipinos, a big chunk of which went to local power generation companies with 18.9% share. Some of the credit were cornered by local businesses engaged in merchandise and service exporters (14.8%) and public utility firms (6.7%).

Meanwhile, total foreign currency loan deposits stood at $46 billion as of end-September, up by 5.5% 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.