Filipinos’ dollar deposits helping with PH economic recovery

MANILA, Philippines—Banking units engaged in dollar transactions, both in terms of deposits and loans, remain on solid footing amid the pandemic, as it maintained asset quality and reported growth in deposits and profitability, according to the central bank.

At an online briefing on Thursday (Sept. 2), Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the country’s Foreign Currency Deposit Unit (FCDU) system also plays a key role in helping the economy recover from its pandemic slump.

According to the regulator, foreign currency assets in these units represented 13.6 percent of the Philippine banking system’s total resources as of June 2021.

These assets amounted to $54.7 billion, lower by 2.8 percent year-on-year, given a slowdown in dollar-denominated lending which was tempered by an increase in portfolio investments.

Fifty percent, or $27.4 billion, of banks’ dollar assets were investments in debt securities issued by non-residents and the Philippine government. This was followed by loans of $21.2 billion, or 38.8 percent, and placements with other banks of $5.5 billion representing 10 percent of total.

“FCDUs have facilitated financial intermediation and directed lending to important sectors of the economy,” Diokno said. “The FCDU network also remains extensive and supportive of the country’s recovery.”

FCDU deposits grew by 3.2 percent year-on-year to $44.5 billion at end-March 2021. Deposits from resident individuals and private corporations remain the primary source of funding of FCDUs. This deposit structure insulates this business segment from changes in global market sentiment that could lead to funding withdrawal.

FCDUs were also able to post a net income of $339.4 million in the first quarter of 2021, although lower by 13 percent year-on-year.

Moreover, asset quality of FCDU loans was manageable. At end-March 2021, the non-performing loan ratio of FCDUs stood at 4.9 percent.

Loans of FCDUs were mostly granted to residents, which represented 70.2 percent of the FCDUs’ total loans The electricity, gas, steam, and air-conditioning supply sector had the largest share of loans to residents at 34.1 percent. This was followed by loans to the manufacturing sector at 20.7 percent, and financial and insurance activities at 14.8 percent.

A total of 76 banks have FCDU authority as of end-May 2021. This network is made up of 43 universal and commercial banks and one thrift bank, which are authorized to engage in expanded FCDU; and three universal or commercial banks, 20 thrift banks, and nine rural and cooperative banks, which maintain regular FCDU licenses.

Banks with FCDU authority may place dollar funds in other banks, invest in readily marketable securities and grant short-term foreign currency loans. Banks with expanded FCDU license may utilize dollar funds for a broader scope of activities which include derivative or foreign exchange trades and long-term lending.

Diokno said the BSP will further streamline FCDU regulations considering evolving banking regulations. The amendments will be aligned with the thrust to veer away from a compliance mindset and embed risk-based principles in all aspects of the BSP’s approach to supervision.

TSB