FCDU loans down by 5.6% (Sabong News)

Banks’ outstanding foreign currency deposit unit (FCDU) loans fell by 5.6 percent or by $938 million to $15.7 billion in 2021 versus $16.7 billion in 2020. The Bangko Sentral ng Pilipinas (BSP) said that on a quarter-on-quarter basis, FCDU lending decreased by 0.7 percent or $115 million from end-September 2021’s $15.8 billion. FCDUs are local units of banks that are permitted to engage in foreign currency transactions including foreign currency deposits. There are 76 banks with FCDU authority, of which 43 are universal and commercial banks. The rest are thrift banks and rural and cooperative banks. In a report, the BSP noted that as in previous quarters, principal FCDU repayments exceeded disbursements. Gross disbursements during the period reached $15.7 billion, 20.5 percent higher from the previous quarter. Loan repayments totaled $15.8 billion or 17.9 percent higher from the third quarter 2021. FCDU deposit liabilities, meantime, amounted to $46.1 billion as of end-December, higher by 0.5 percent or $217 million from $45.9 billion in end-September. “The bulk of these deposits (97 percent) continue to be owned by residents, essentially constituting an additional buffer to the country’s gross international reserves,” said the BSP. Year-on-year, FCDU deposit liabilities increased by 2.3 percent or $1 billion from $45.1 billion in 2020. “Outstanding FCDU loans recorded another decline during the fourth quarter of 2021 following its downward trend for the last six consecutive quarters since the onset of the pandemic despite signs of economic recovery in recent quarters,” said the BSP. The BSP also said that the lower FCDU loans were because of the these two factors: lender banks’ tightened credit standards resulting in a slowdown in their lending operations and credit activity; and availability of other sources of funding. About 80 percent of FCDU loan portfolio are still predominantly medium- to long-term debt or those payable over a term of more than one. Of the total 66 percent outstanding loans to residents, 59.7 percent were borrowed by these sectors: power generation companies with 26.8 percent of the total; merchandise and service exporters with 22.5 percent; and public utility firms with 10.4 percent. BSP Circular No. 1134, approved last Dec. 28, amended the requirements on FCDU transactions for better monitoring and adoption of risk controls. Also in December, the BSP recalibrated its foreign currency deposit system regulations to make it more flexible by updating banks’ risk management and business practices. The new FCDU rules allowed banks more flexible liquidity cash management of foreign currency denominated funds by easing the stringent conditions on lending to regular banking unit by the Expanded FCDU or EFCDU. Banks with both E/FCDU and FCDU authority are allowed to engage in foreign currency-foreign currency swap, and in foreign exchange trading. They can also – with prior BSP approval — engage in financial futures and options trading.