PH borrowers’ choice during pandemic: Dollar loans

Dollar-denominated loans issued by Philippine financial institutions rose substantially at the end of the first quarter of 2020 which the central bank said was due to lower interest rates offered on foreign currency loans.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that as of end-March 2020, loans issued by Foreign Currency Deposit Units of banks stood at $18.3 billion — higher by $1.5 billion or 8.7 percent from the end-March 2019 level of $16.8 billion.

The 2020 end-March level was also higher by $239 million or by 1.3 percent from the end-December 2019 level of $18 billion as disbursements exceeded principal repayments.

“The growth in loans may be attributed to borrowing firms’ higher working capital requirements, lower interest rates as well as increased investment in plant or equipment,” the central bank said.

Market uncertainties as the COVID-19 pandemic unfolded also made domestic borrowers shift to medium- to long-term foreign currency loans and retire their shorter term liabilities.

As of end-March 2020, the maturity profile of banks’ dollar loan portfolios remained predominantly medium- to long-term, or those payable for more than one year. These made up 79.5 percent of total, higher than 75.8 percent in March 2019.

Of the total 64.8 percent loans to residents, 51.8 percent went to the following resident industries:

• Power generation companies (18 percent)
• Merchandise and service exporters (13.9 percent)
• Public utility firms (7.8 percent)
• Towing, tanker, trucking, forwarding, personal and other industries (6.9 percent)
• Producers or manufacturers, including oil companies (5.2 percent)

Gross disbursements in the first quarter of 2020 reached $14.3 billion and were 7.8 percent higher than the that of the last quarter of 2019 due to the increase in funding requirements of affiliates of a branch of a foreign bank.

Similarly, loan repayments were higher by 7.2 percent, thus, resulting in overall net disbursements.

Banks’ dollar deposit liabilities stood at $43.1 billion as of end-March 2020, higher by $2 billion or by 4.9 percent from the end-December 2019 level of $41.1 billion.

The bulk of these deposits (98 percent) continued to be owned by residents, essentially constituting an additional buffer to the country’s gross international reserves.

Year-on-year, banks’ dollar deposit liabilities increased by $3.1 billion or by 7.8 percent from the end-March 2019 level of $40 billion.

TSB