Pandemic jitters melt local firms’ demand for dollar loans, too

MANILA, Philippines—Uncertainty over the full extent of the COVID-19 pandemic’s adverse impact on the economy has resulted not only in less peso-denominated loans being underwritten by Philippine banks but in fewer dollar-denominated borrowings in the local market as well, according to the latest data from the central bank.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said that, as of end-December 2020, outstanding loans granted by foreign currency deposit units of banks stood at $16.7 billion, lower by $614 million or 3.6 percent from the end-September 2020 level of $17.3 billion, as principal repayments exceeded disbursements.

Year-on-year, outstanding dollar loans decreased by $1.4 billion or by 7.7 percent from the end-December 2019 level of $18 billion.

“The decline in [dollar denominated] loans may have resulted from tightened credit standards as well as lower working capital requirements due to the economic slowdown,” the BSP chief said.

As of end-December 2020, the maturity profile of the banks’ dollar loan portfolios remained predominantly medium- to long-term debt, or those payable over a term of more than one year, which represented 80 percent of total, slightly higher than the 79 percent level as of end-December 2019.

Of the total 67 percent outstanding loans to residents, 40 percent went to power generation companies (17.9 percent); merchandise and service exporters (14.2 percent); and public utility firms (7.9 percent).

Gross disbursements in the fourth quarter of 2020 reached $13.9 billion and were 13.9 percent higher than the third quarter figure due to the increase in funding requirements of an affiliate of a branch of a foreign bank.

Similarly, loan repayments were higher by 12.4 percent, thus, resulting in overall net repayments.

Deposit liabilities of banks’ foreign currency units stood at $45.1 billion as of end-December 2020, lower by $890 million or 1.9 percent from the end-September 2020 level of $46 billion.

Of this amount, 97.5 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 $4 billion or 9.7 percent from the end-December 2019 level of $41.1 billion.

The trend in banks’ dollar loans mirrored that of their peso-denominated lending operations which showed a decline for the third consecutive month of underwritten loans as of February 2021.

According to the BSP, outstanding loans of universal and commercial banks, net of short term deposits with the regulator, fell by 2.7 percent year-on-year in February after declining by 2.5 percent in January.

TSB