Pandemic continues to weaken demand for dollar loans

MANILA, Philippines—The total amount of dollar loans granted by local banks declined further in the second quarter of 2021, both from its level in the same period in 2020 and in the previous three months, as the pandemic weakened demand from borrowers for working capital.

According to the Bangko Sentral ng Pilipinas (BSP), outstanding loans granted by Foreign Currency Deposit Units of banks stood at $16.2 billion, lower by $170 million or by 1 percent than the end-March 2021 level of $16.3 billion as principal repayments exceeded disbursements.

“The decline in dollar loans may be attributed to lender banks’ tightened credit standards resulting in a slowdown in their lending operations and credit activity; borrowers’ reduced working capital and funding requirements relative to pre-pandemic levels amid economic slowdown; and the availability of other sources of funding,” the central bank said.

Year-on-year, outstanding dollar loans decreased by $1.8 billion or by 10 percent from the end-June 2020 level of $18.0 billion.

As of end-June 2021, the maturity profile of banks’ dollar loan portfolios remained predominantly medium- to long-term debt [or those payable over a term of more than one year], which represented 78.9 percent of total, slightly lower than the 79.9 percent level as of end-June 2020.

Of the total 67.1 percent outstanding loans to residents, 40.2 percent went to power generation companies (17.7 percent); merchandise and service exporters (14.6 percent); and public utility firms (7.9 percent).

Gross disbursements in the second quarter of 2021 reached $14.1 billion and were 11 percent lower than the previous quarter’s figure mainly due to the decrease in funding requirements of an affiliate of a branch of a foreign bank. Similarly, loan repayments were lower by 11.6 percent.

These resulted in overall net repayments.

Banks’ dollar deposit liabilities stood at $45.6 billion as of end-June 2021, higher by $1.1 billion or by 2.6 percent from the end-March 2021 level of $44.5 billion.

The central bank said a total of 97.5 percent of these deposits 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 $2.1 billion or by 4.8 percent from the end-June 2020 level of $43.6 billion.

TSB