Banks’ FCDU lending jumps by 23% to $8.6B

Foreign currency-denominated loans extended by banks operating in the Philippines jumped by about 23 percent in 2012 from year-ago level, as the rising dollar liquidity in the system allowed financial institutions to accommodate the growing demand for credit.

The Bangko Sentral ng Pilipinas on Wednesday reported that outstanding loans granted by the Foreign Currency Deposit Unit of banks reached $8.67 billion in 2012, up from $7.07 billion a year ago.

This was attributed partly to an increase in the country’s external trade.

Importers, including those who import raw materials for their products for export, are the biggest borrowers of foreign exchange, mainly dollars.

The BSP said the favorable outlook on the Philippine economy and the relatively low cost of credit encouraged companies to invest more. Additional investments led to higher demand for imports and, therefore, greater need for foreign currency-denominated loans.

“This development was attributed to the favorable interest-rate environment and the positive business sentiment arising from strong macro-economic fundamentals,” the BSP said in a statement.

Interest rates fell to record lows last year. The BSP slashed its key policy rates, which influence commercial interest rates, four times last year for a total of 100 basis points to boost the economy’s growth.

Monetary officials believed that low interest rates helped boost demand for loans which, in turn, could boost purchases by consumers and investments by enterprises.

Aided by growth in lending, the economy grew by  6.6 percent last year, beating the official target of 5 to 6 percent.

Export revenues grew year-on-year by 7.6 percent to $51.99 billion, reversing the previous year’s contraction, amid modest improvement in global demand. Imports rose by nearly 2 percent to $61.66 billion.

Data from the BSP showed that $7.33 billion of the outstanding FCDU loans extended  as of the end of 2012 represented the borrowings of private local entities while the balance was accounted for by government entities and foreign companies.

Of the total amount, $6.23 billion was extended by commercial banks and the rest was granted by thrift banks.

The BSP said FCDUs used a bigger portion of foreign-currency deposits for lending. Data further showed that the outstanding loans were equivalent to 34.5 percent of the total foreign-currency deposits held by banks.