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Philippine FCDU System 1H 2009 Review

09.18.2009

As of end-June 2009, total assets of the Philippine foreign currency deposit unit (FCDU) system stood at $24.8 billion, lower by 2.3 percent or $0.5 billion from $25.3 billion a year ago. Universal and commercial banks (U/KBs) accounted for 95.0 percent or $23.6 billion of the total FCDU assets whereas thrift banks (TBs) held the balance of 5.0 percent or $1.2 billion. Rural and cooperative banks (R/CBs) contributed less than a million dollars, hardly making a dent in the system.

FCDUs still operated profitably. Annualized net profit for the period ended June 2009 amounted to $476 million, lower by $140 million or 22.7 percent from $616 million same period last year. This was largely attributed to the $175 million unrealized marked-to-market losses on financial assets and liabilities held for trading, bundled by the enormous $204 million increase in provision for credit losses on loans and receivables and other financial assets due to the global financial meltdown. Consequently, the annualized return on assets (ROA) ratio dropped to 1.9 percent from 2.5 percent. By industry, the U/KBs accounted for 95.3 percent (or $454 million) of net profit while thrift banks contributed the remaining 4.7 percent (or $22 million).

Deposit liabilities remained the biggest source of funding, accounting for a hefty 87.9 percent share of total resources. Deposits reached $21.8 billion, higher by 6.1 percent or $1.2 billion from year ago’s $20.5 billion.

 At the onset of the global meltdown, asset preference was reversed in response to Circular No. 626 dated 23 October 2008 and Circular No. 628 dated 31 October 2008. The two Circulars allowed financial institutions to reclassify their financial assets from categories measured at fair value to categories measured at amortized cost. Consequently, held to maturity (HTM) financial assets, net mushroomed by 191.3 percent to $4.8 billion, while held for trading (HFT) financial assets at $1.2 billion recovered by 30.9 percent coming from a steep decline at end-June 2008. In the same way, unquoted debt securities classified as loans, net rose to $1.7 billion (194.6 percent) from a low initial condition of $0.6 billion, while available-for-sale (AFS) financial assets, net fell by 37.0 percent to $4.6 billion. 

Loans, gross (exclusive of interbank loans) grew by 1.4 percent to $4.6 billion from $4.5 billion a year ago. Bulk or 81.7 percent ($3.8 billion) of total loans (exclusive of IBL) was to resident borrowers, while the remaining share of 18.3 percent ($0.8 billion) was extended to non-resident borrowers. Meanwhile, disaggregating loans to residents as to economic activity revealed that the manufacturing sector remained a major credit beneficiary at $1.3 billion or 34.5 percent. The transport, storage and communications sector was a distant second at $0.7 billion or 18.3 percent, whereas the electricity, gas and water sector ranked third at $0.6 billion or 15.0 percent. These top 3 sectors constituted 67.8 percent of the total FCDU loans to residents.

The non-performing loans (NPL) ratio improved to 1.6 percent from 1.7 percent a year ago as the portfolio of bad debts was pared by 26.9 percent to $76 million from $94 million. On the other hand, the non-performing assets (NPA) ratio barely changed at 0.3 percent between the two comparative periods. Meanwhile, the NPL and NPA coverage ratios widened to 191.1 percent and 174.0 percent, respectively, from the 180.4 percent and 163.8 percent ratios a year ago.

View  Table 1 | Table 2

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