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Philippine FCDU System Year-End Review


As of end-December 2008, total assets of the Philippine foreign currency deposit unit (FCDU) system stood at $23.9 billion, lower by 3.3 percent or $0.8 billion from $24.7 billion last year. Universal and commercial banks (U/KBs) accounted for 95.4 percent or $22.8 billion of the total FCDU assets, whereas thrift banks (TBs) held the balance of 4.6 percent or $1.1 billion.

FCDUs still operated profitably. Net profit for 2008 amounted to $402 million, lower by $335 million or 45.5 percent from $737 million last year. This was mainly due to the simultaneous decline in net interest income by 3.5 percent (or $19 million) and in non-interest income by 54.0 percent (or $169 million), bundled with the 4.2 percent or $4 million increase in non-interest expenses to $98 million from $94 million. Consequently, the return on assets (ROA) ratio dropped to 1.7 percent from 3.1 percent. By industry, the U/KBs accounted for 96.5 percent (or $388 million) of net profit while thrift banks contributed the remaining 3.5 percent (or $14 million).

Deposit liabilities remained the biggest source of funding, accounting for a hefty 85.5 percent share of total resources. Deposits reached $20.4 billion, higher by 5.4 percent or $1.0 billion from last year’s $19.4 billion.

At the onset of the global economic and financial crisis, asset preference shifted to held-to-maturity (HTM) financial assets from held-for-trading (HFT) financial assets in response to BSP Circular No. 626 dated 23 October 2008 and BSP Circular No. 628 dated 31 October 2008. The two Circulars allowed financial institutions to reclassify their financial assets other than loans from categories measured at fair value to categories measured at amortized cost. Consequently, HTM financial assets, net expanded by 85.8 percent to $4.6 billion, while HFT financial assets contracted by 52.4 percent to $1.0 billion. In the same way, unquoted debt securities classified as loans, net now had a balance of $1.7 billion, while available-for-sale (AFS) financial assets, net fell by 48.3 percent to $3.9 billion. 

Loans, gross (exclusive of interbank loans) expanded by 30.7 percent to $5.4 billion from $4.1 billion in 2007. Bulk or 79.8 percent ($4.3 billion) of total loans was granted to resident borrowers, while the remaining share of 20.2 percent ($1.1 billion) was extended to non-residents. Meanwhile, disaggregating loans to residents as to economic activity revealed that the manufacturing sector remained a major credit beneficiary at $1.8 billion or 42.3 percent. The transport, storage and communications sector was a distant second at $0.6 billion or 14.7 percent, whereas the electricity, gas and water sector ranked third at $0.5 billion or 12.1 percent. These top 3 sectors constituted 69.1 percent of the total FCDU loans to residents.

The non-performing loans (NPL) ratio improved to 1.3 percent from 2.0 percent last year as the stock of bad debts was pared by 26.9 percent to $69 million from $94 million. Likewise, the non-performing assets (NPA) ratio eased to 0.3 percent from 0.4 percent. Meanwhile, the NPL and NPA coverage ratios widened to 206.4 percent and 184.9 percent, respectively, from the 189.0 percent and 174.8 percent ratios last year.

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