Foreign currency loans extended by banks in the Philippines climbed past $16 billion at the end of the second quarter, driven largely by increased borrowing from residents, according to data released by the Bangko Sentral ng Pilipinas (BSP).

Outstanding loans from foreign currency deposit units (FCDUs) stood at $16.306 billion as of end-June, the central bank said on Wednesday. That marks a 2.4% increase from $15.928 billion a year earlier and a 5.6% rise from $15.439 billion as of March.

FCDUs are units of local banks, or local branches of foreign banks, authorized by the BSP to service transactions involving foreign currencies, including deposits and loans. Resident and nonresident borrowers — individuals as well as businesses such as importers — use these loans to meet foreign currency payables or needs.

The BSP attributed the quarter-on-quarter growth primarily to increased borrowing by export-oriented firms and activity in other industries.

Borrowers by Residence

Of the total outstanding loans, $11.653 billion, or 71.5%, went to Philippine-based borrowers, up from $.117 billion — about a 63.5% share of the total — a year ago and $10.443 billion in the prior quarter. Within this segment, companies in towing, tanker, trucking, forwarding, personal, and other industries accounted for $3.07 billion (26.3%), merchandise and service exporters took $2.85 billion (24.5%), and power generation companies borrowed $1.86 billion (16%), the BSP said.

Loans to nonresidents, by contrast, stood at $4.654 billion in the second quarter, or 28.5% of the total — down from $5.811 billion in the same period last year and $4.996 billion at end-March.

Maturity and Creditor Mix

By maturity, BSP data showed that $11.953 billion, or 73.3%, of end-June FCDU loans carried medium- to long-term tenors — those maturing beyond one year. That was down from $12.577 billion (79%) a year earlier but up from $11.91 billion (77.1%) at end-March. Short-term loans, maturing in a year or less, totaled $4.354 billion, or 26.7% of the total, up from $3.35 billion (21%) year on year and from $3.529 billion (22.9%) at end-March.

By creditor, local banks disbursed 82.1% of total FCDU loans as of the second quarter, or $13.381 billion. Of that amount, $13.361 billion came from commercial banks while $20 million was from thrift banks. Foreign bank branches and subsidiaries extended the remaining 17.9%, or $2.926 billion.

Deposits and Loan-to-Deposit Ratio

Meanwhile, banks' FCDU deposit liabilities — foreign-currency deposits held with these units — slipped to $60.111 billion as of June from $60.669 billion a year ago and $60.77 billion in the previous quarter, the BSP said. This left an overall FCDU loans-to-deposit ratio, a gauge of how much of the deposit base has been lent out, at 27.1%, up from 26.3% a year ago and from 25.4% at end-March.

Analyst Commentary

The modest year-on-year rise in FCDU loans came amid the risk of incurring larger foreign exchange losses due to the peso's weakness against the dollar, as well as elevated US Treasury yields that make FCDU loans more expensive to service, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The peso closed at P61.36 against the dollar on June 30, declining by 4.19%, or P2.57, from its P58.79 finish on Dec. 29.

"Even the National Government has reduced the share of foreign borrowings in its total borrowing mix in recent years due to forex (foreign exchange) risks entailed in external debt," Mr. Ricafort said.

He added that moving forward, FCDU loans could continue to be affected by currency and yield pressures amid the impact of the prolonged Middle East conflict on global markets.

Original report by Aaron Michael C. Sy, BusinessWorld: Banks' foreign currency loans rise past $16 billion as of June.