Pandemic crimped Q3 corporate demand for dollar loans from local banks

MANILA, Philippines — The decline in cash requirements companies coupled with more stringent lending policies of banks during the ongoing coronavirus pandemic resulted in a decline in dollar-denominated loans granted by banks at the end of the third quarter, according to the country’s monetary regulator.

In a statement, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said that, as of end-September 2020, outstanding loans granted by Foreign Currency Deposit Units of banks stood at $17.3 billion.

This was lower by $702 million or 3.9 percent from the end-June 2020 level of $18 billion as principal repayments exceeded disbursements.

“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, as the ongoing health crisis brought about by the COVID-19 pandemic continued to constrain domestic economic activity.” the central bank chief said.

Year-on-year, loans underwritten by banks’ dollar-transacting units decreased by $554 million or 3.1 percent from the end-September 2019 level of $17.8 billion.

As of end-September 2020, the maturity profile of the industry’s dollar loan portfolio remained predominantly medium- to long-term debt, or those payable over a term of more than one year, which represented 79.6 percent of the total. This was higher than the 77.5 percent level recorded as of end-September 2019.

Of the total 65 percent outstanding loans to residents, 40.4 percent went to locally based industries like power generation companies (18.9 percent); merchandise and service exporters (14.8 percent); and public utility firms (6.7 percent).

Gross disbursements in the third quarter of 2020 reached $12.2 billion and were 8.6 percent higher than the previous quarter’s figure due to the increase in funding requirements of an affiliate of a branch of a foreign bank.

Similarly, loan repayments were higher by 11.9 percent, thus, resulting in overall net repayments.

US dollar deposit liabilities of the banking industry stood at $46 billion as of end-September 2020, higher by $2.4 billion or 5.5 percent from the end-June 2020 level of $43.6 billion.

The bulk of these deposits — a total of 97.6 percent — continue to be owned by residents, essentially constituting an additional buffer to the country’s gross international reserves. Year-on-year, dollar deposit liabilities increased by $4.8 billion or 11.7 percent from the end-September 2019 level of $41.1 billion.

/MUF