By Francis Allan L. Angelo
Foreign currency loans issued by banks’ Foreign Currency Deposit Units (FCDU) fell by 2.7% in the second quarter of 2024, according to data from the Bangko Sentral ng Pilipinas (BSP).
Outstanding FCDU loans stood at US$15.63 billion (PHP 890.2 billion) as of the end of June, down from US$16.07 billion (PHP 914.6 billion) in March, as loan repayments outpaced new disbursements.
The decline was attributed to businesses and other borrowers making more repayments during the period, reflecting adjustments in their financial strategies.
Loan repayments exceeded disbursements, which is why we see a net repayment scenario for the quarter, according to a BSP report.
Year-on-Year Growth in Loans
Despite the quarter-on-quarter decline, FCDU loans grew by 1.6% year-on-year, up by US$240.70 million (PHP 13.7 billion) from US$15.39 billion (PHP 877.5 billion) at the end of June 2023.
FCDU loans provide Philippine-based entities access to foreign currency financing, particularly for international trade, infrastructure, and business operations requiring foreign funds.
Long-Term Loans Still Dominate
The majority of the outstanding loans, or 76.7%, were classified as medium- to long-term, meaning they have repayment terms exceeding one year.
The figure is slightly lower than the 79.1% reported in the first quarter of 2024, but it still indicates a preference among businesses for extended loan terms to finance capital-intensive projects.
Of the total FCDU loans, US$9.48 billion (PHP 540.3 billion), or 60.7%, were granted to local residents.
These funds largely supported key sectors such as merchandise and service exporters, which received US$2.49 billion (PHP 141.9 billion), and power generation companies, which were granted US$2.12 billion (PHP 120.9 billion).
Other industries, including logistics, transport, and various services, accounted for US$1.68 billion (PHP 95.9 billion), underscoring the reliance on foreign currency loans for operational financing.
Gross Disbursements and Repayments
In the second quarter, gross loan disbursements from FCDUs reached US$19.90 billion (PHP 1.13 trillion), an increase of 3.9% compared to the previous quarter’s US$19.15 billion (PHP 1.09 trillion).
The rise was mainly due to higher funding needs from a foreign bank’s local affiliate.
However, the increase in disbursements was offset by significantly higher loan repayments, which totaled US$20.33 billion (PHP 1.16 trillion), up 11.5% from the previous quarter’s US$18.23 billion (PHP 1.03 trillion).
This trend of higher repayments than disbursements led to a net repayment outcome for the quarter, signaling cautious borrowing practices in response to evolving market conditions.
FCDU Deposits Decline, But Still Strong Year-on-Year
FCDU deposit liabilities fell to US$55.16 billion (PHP 3.14 trillion) by the end of June 2024, down by 5.9% from US$58.61 billion (PHP 3.33 trillion) in March.
However, on a year-on-year basis, FCDU deposits increased by 12.6%, reflecting a rise in foreign currency savings from residents.
The majority of these deposits, or 97.6%, were owned by Philippine residents, which helps build up the country’s gross international reserves.
FCDU deposits can serve as a buffer during periods of economic stress by providing businesses and individuals with the foreign currency needed to meet international obligations.
What Are FCDU Loans and Deposits?
Foreign Currency Deposit Units (FCDUs) are specialized units within banks that accept deposits and issue loans in foreign currencies, particularly U.S. dollars.
This allows businesses and individuals to conduct international transactions without needing to convert pesos to foreign currency.
FCDU loans are typically used by export-oriented businesses, power generation firms, and other industries with international operations or contracts.
Despite the quarterly decline, the year-on-year growth in FCDU deposits and loans suggests continued confidence in the availability of foreign currency financing, even as companies focus on managing existing debt loads.
