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

Uncertainty over the full extent of the 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 latest data from the central bank.

In a statement, Bangko Sentral ng Pilipinas 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 than 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 central bank chef said.

Mostly medium- to long-term

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 the total, slightly higher than the 79 percent 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 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 12.4 percent, thus, resulting in overall net repayments.

Up year-on-year

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 echoes 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 central bank, 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.