Weak credit demand seen in banks’ dollar loan decline in March

MANILA, Philippines — Dollar denominated loans from Philippine banks in the first quarter of 2021 declined by a tenth from their level in the same period in 2020 as borrowers repaid debts and stayed away from new ones.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said that as of end-March 2021, outstanding loans granted by Foreign Currency Deposit Units [FCDU] of banks stood at $16.3 billion.

This marked an annual decrease of $1.9 billion, or 10.6 percent, from the end-March 2020 level of $18.3 billion.

On a quarterly basis, the latest figure was also lower by $315 million, or by 1.9 percent, from the end-December 2020 level of $16.7 billion, as principal repayments exceeded disbursements.

“The decline in FCDU loans may be attributed to the continued contraction of the economy during the quarter, which translated to lower working capital requirements among borrowers,” Diokno said.

Other reasons that Diokno cited were “lender banks’ continued lower appetite to lend and availability of other sources of funding.”

As of end-March 2021, the maturity profile of banks’ dollar loan portfolios remained predominantly medium- to long-term—or those payable over a term of more than one year—which represented 79.1 percent of total. This was slightly lower than the 79.5 percent level as of end-March 2020.

Of the total 67.7 percent outstanding loans to residents, 60.2 percent went to the following industries: power generation companies (27.1 percent); merchandise and service exporters (21.7 percent); and public utility firms (11.4 percent).

Gross disbursements in the first quarter of 2021 reached $15.8 billion and were 13.5 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 10.6 percent, thus, resulting in overall net repayments.

Banks’ deposit liabilities stood at $44.5 billion as of end-March 2021, lower by $553 million or by 1.2 percent from the end-December 2020 level of $45.1 billion.

The quarter-on-quarter decline in dollar deposits may be attributed to the sustained strength of the peso, the BSP said.

Bulk of these deposits, or 97.2 percent, continued 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 $1.4 billion or by 3.2 percent from the end-March 2020 level of $43.1 billion.