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The Resources of Philippine Foreign Currency Deposit Unit (FCDU) System Hits All Time High

11.27.2005

As of end-June 2005, the total assets of the FCDU system reached US$21,223.7 million, exhibiting an 11.0 percent year-on-year growth.  This was the highest asset level recorded since its peak of US$20,528.0 million at end-1997.  The bulk of these assets (96.7 percent or US$20,522.5 million) was still held by universal/commercial banks whereas the balance was accounted for by thrift banks (3.3 percent of US$701.2 million). 

The system generated US$298.8 million Net Income After Tax (NIAT) for the first half of 2005.  This was 23.0 percent higher than its earnings during the same period last year.  The improvement resulted from the simultaneous increase in net interest income (i.e., 21.8 percent to US$256.4 million) and non-interest income (i.e., 13.2 percent to US$107.7 million).  This dampened the effect of the 6.1 percent hike in operating expenses to US$60.9 million. Consequently, the annualized return on assets stood at 3.2 percent, almost equal its year ago ratio of 3.3 percent.  Universal/commercial banks accounted for 96.2 percent of the system’s reported earnings while thrift banks contributed the balance of 3.8 percent.

 Deposit liabilities continued to be the main source of funding, accounting for 74.1 percent of the total FCDU assets.  These were valued at US$15,728.4 million or 8.1 percent higher than the US$14,554.5 million posted in the previous year.

Meanwhile, asset preference shifted in favor of marketable securities.  The proportion of assets held in this type of securities almost doubled to 22.8 percent from 12.7 percent a year ago.  In contrast, the share of investments held to maturity declined to 22.8 percent from 35.8 percent during the same period.  This development was attributed to the issuance of Circular No. 476 dated 16 February 2005, which prescribed the accounting guidelines for investments in debt and equity securities.  The Circular was issued primarily to promote full transparency so as to strengthen market discipline and encourage sound risk management within the system.

Investments likewise was preferred over loans as indicated by the decrease of the share of total loan portfolio (including interbank loans) to total assets, i.e., to 36.3 from 37.7 percent a year ago. 

Major beneficiary industries of the system’s lending activity were: the Manufacturing Sector with 36.7 percent (or US$1,357.7 million) share of the system’s total loans; the Utilities Sector with 17.9 percent (or US$663.0 million) share and the Transportation, Storage and Communication Sector with 12.0 percent (or US$ 445.0 million) share.  Altogether, the system’s exposures to these three (3) industries made up 66.6 percent of the total FCDU loans as of end-June 2005.

 FCDUs posted enhanced loan and asset quality for the period.  Both NPL (non-performing loans) and NPA (non-performing assets) ratios dropped, i.e., to 3.2 percent (from 5.9 percent a year ago) and to 1.2 percent (from 2.4 percent), respectively.  This improvement was traced to the 42.6 percent reduction in NPLs, which subsequently led to the 78.1 percent decrement in NPAs.  In contrast, NPL and NPA coverage ratios were almost twice their year ago levels, i.e., 104.9 percent (vs. 59.1 percent last year) and 102.8 percent (vs. 56.7 percent), respectively.

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