Domestic borrowers have been shifting away from FCDU (Foreign Currency Deposit Units) loans in favor of peso borrowings to minimize foreign exchange risks and to take advantage of lower local lending rates.
FCDU loans peaked at $11.9 billion in the second quarter in 1997, immediately before the Asian financial crisis, and since then has been on a steady decline. By yearend 1998, it was down to $7.9 billion, dipped further to $7.29 billion in 1999, shrunk to $6.2 billion in 2000, fell to $5.5 billion in 2001 and as of June 30,2002 stood at just $5.15 billion, a five-year low.
In effect, FCDU loans contracted by as much as 57% in the last five years, even as consolidated foreign currency deposits have remained relatively stable: $14.5 billion in 1997 and $12.75 billion as of June this year.
The changing borrowing preference is reflected in an increase in the consolidated loan portfolio of the banking sector net of FCDU loans – up 14.2% from P1,222 billion in June 1997 to P1,396 billion as of June 2002. Total regular peso rediscounting granted by BSP also moved up significantly, rising from P6.4 billion for the entire year 1997 to P7.8 billion for just the first six months this year.
While foreign lending rates have generally stayed at single-digit levels, domestic rates have become more competitive. Average lending rates in the Philippines for all maturities dropped from double digit levels of 16.22% in 1997; 18.4% in 1998; 11.75% in 1999; 10.86% in 2000; 12.4% in 2001; and finally to a single digit 8.91% as of June 2002.
Overall, FCDU loans-to-deposits ratio stood at 38.3% in the first semester 2002. Loans to resident borrowers represented 98% of outstanding portfolio, with exporters emerging as top FCDU borrowers with a 28% share followed by public utilities with a 25% share.
FCDU loans with short term maturities represented 35.5% of the total and the balance of 64.5% medium and long-term accounts. Private sector loans continued to account for bulk of outstanding FCDU loans: 78.9% as of June 2002. The top FCDU lenders in the first semester this year were Philippine National Bank, Rizal Commercial Banking Corporation, Citibank, Bank of Philippine Islands, and Metropolitan Bank and Trust Company.