Dollar loans clipped as peso continues to spook

Local borrowers took out fewer dollar-denominated loans from Philippine banks in the second quarter, wary of the prospect of ballooning liabilities the weakening peso may bring, according to a report from the Bangko Sentral ng Pilipinas (BSP).

As of end-June 2018, outstanding loans granted by Foreign Currency Deposit Units (FCDUs) of banks stood at $15.7 billion, lower by $690 million (4.2 percent) from the end-March 2018 level of $16.4 billion, as principal repayments exceeded disbursements, BSP officer-in-charge Chuchi Fonacier said in a statement.

The maturity mix of the loan portfolio remained biased towards medium- to long-term debt, or those payable over a term of more than one year, which represented 75.6 percent of total.

The bulk of outstanding loans went to the following resident industries: towing, tanker, trucking and forwarding (24.6 percent); merchandise and service exporters (20 percent); public utility firms (10 percent); producers/manufacturers, including oil companies (4 percent).

Gross disbursements during the reference quarter reached $14.6 billion, or 6 percent lower than the previous quarter’s figure.

In contrast, loan repayments were higher by 4.9 percent, thus resulting in overall net principal repayments of $676 million.

FCDU deposit liabilities likewise decreased by $456 million to $37.9 billion from last quarter’s $38.4 billion level, with 97.1 percent continuing to be held by residents. These essentially constitute an additional buffer to the country’s gross international reserves.

Meanwhile, preliminary data on the Philippines’ international investment position showed the country’s external liability position amounted to $28.4 billion as of end-June 2018, lower by 16.2 percent than the $33.9 billion recorded in the previous quarter.

The BSP said this development emanated primarily from the $7.7-billion contraction in the country’s total financial liabilities to $198.2 billion, which outweighed the $2.2-billion decline in total financial assets to $169.9 billion during the review period.

The country’s external financial liabilities as of end-June 2018 declined due mainly to the revaluation adjustments, particularly in direct and portfolio equity instruments. The negative revaluation adjustments mirrored the 9.9-percent quarter-on-quarter dip in the Philippine Stock Exchange Index to 7,193.68 at end-June 2018.

Furthermore, the continued depreciation of the peso against the US dollar contributed partly to the decrease in financial liabilities, as peso-denominated instruments posted lower dollar equivalents. These negative revaluation adjustments more than offset the continued inflows of foreign direct investments to the economy during the quarter.

Meanwhile, the 1.3-percent drop in the country’s external financial assets reflected the $3-billion decrease in the BSP’s reserves from the previous quarter’s level.