A notable shift occurred in the financial landscape as loans issued through banks’ foreign currency deposit units (FCDU) experienced a 5% decrease during the third quarter of the year, according to recent central bank data.
By the end of September, the total outstanding FCDU loans had fallen to $15.126 billion, a decline from the $15.928 billion recorded at the end of June. This represents a continuing trend, with a year-on-year decrease of 3.9% from the $15.747 billion reported in September of the previous year.
FCDUs play a crucial role in facilitating foreign currency transactions, serving as specialized units within local and foreign banks authorized to handle deposits and loans in various currencies. These units cater to both local and international borrowers, assisting with foreign currency obligations and needs.
Throughout the quarter, FCDUs disbursed $9.77 billion in new loans, while simultaneously receiving $10.56 billion in loan repayments, resulting in the overall decline in outstanding balances.
A significant portion of the outstanding loans, approximately $12.068 billion – nearly 80% – were categorized as medium- to long-term, with maturities extending beyond one year. However, even this segment saw a slight reduction compared to the previous quarter.
Short-term loans accounted for the remaining $3.057 billion, representing just over 20% of the total. This figure also decreased from the end of June, indicating a broader trend of reduced lending activity.
The majority of these loans, $9.592 billion or 63.4%, were extended to borrowers based within the Philippines, all of whom were private sector entities. This highlights the importance of FCDUs in supporting domestic business operations.
Key sectors benefiting from these loans included merchandise and service exporters, receiving $2.51 billion, followed by transportation and related industries with $2.05 billion, and power generation companies with $1.71 billion.
Loans to non-resident borrowers totaled $5.534 billion, representing approximately 36.6% of the overall FCDU loan portfolio. This demonstrates the continued role of FCDUs in international financial flows.
Local banks were the primary lenders, extending 84% of the outstanding FCDU loans, totaling $12.713 billion. Commercial banks accounted for the vast majority of this amount, with thrift banks contributing a smaller portion.
Foreign bank branches and subsidiaries provided the remaining 16%, or $2.413 billion, of the loans during the period. This illustrates the collaborative nature of FCDU lending, involving both domestic and international financial institutions.
Alongside the loan activity, FCDU deposit liabilities experienced a slight increase of 0.1% to $60.732 billion by the end of September, compared to $60.669 billion at the end of June. Year-on-year, deposits rose by a more substantial 5.69%.
This shift in deposits and loans resulted in a loans-to-deposits ratio of 24.9% at the end of September, a decrease from 26.3% in June and 27.4% the previous year. This ratio provides insight into the lending activity relative to the available deposit base.
