Companies scaled back borrowing from Philippine banks’ foreign currency funds in the first quarter, pulling total loans down to $15.44 billion as high global interest rates made dollar debt increasingly expensive.

According to the latest data from the Bangko Sentral ng Pilipinas (BSP), outstanding foreign currency deposit unit (FCDU) loans slipped in the first three months of the year from the $15.56 billion recorded at the end of December 2025.

The contraction was primarily driven by a drop in credit extended to non-residents, which fell to $5 billion from $5.17 billion in the previous quarter. Non-resident obligations accounted for 32.4 percent of the total FCDU portfolio.

The central bank noted that outstanding loans during the quarter reflected “$8.25 billion in new loans and $8.36 billion in loan payments.” This net payment position directly contributed to the reduction in outstanding balances.

Meanwhile, loans granted to residents—or Philippine-based borrowers—reached $10.44 billion, accounting for 67.6 percent of the portfolio, up from 66.8 percent in the previous quarter. Of these resident loans, $2.75 billion (26.4 percent) was concentrated in the merchandise and service exporters sector.

Following closely, the towing, tanker, trucking, forwarding, personal, and other industries accounted for $2.51 billion (24 percent), while power generation companies held $1.85 billion (17.7 percent).

Most loans carried medium- to long-term maturities of over one year. These long-term obligations accounted for 77.1 percent of the total FCDU loan portfolio as of end-March, down from the 79.2 percent share recorded in the previous quarter.

Complementing the loan data, FCDU deposit liabilities grew to a preliminary $60.77 billion at end-March, marking a 1.6 percent increase from the $59.83 billion recorded in December 2025.

FCDU facilities remain crucial to the economy because they allow banks to provide foreign currency financing to businesses and eligible borrowers, supporting essential operations for importers and firms requiring foreign exchange.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank), said the first-quarter drop in FCDU loans could be attributed to a slowdown in foreign borrowing demand “amid still-cautious global conditions and elevated US dollar borrowing costs early in the year.”

“Non-resident borrowers, which are often more sensitive to global liquidity and trade dynamics, likely scaled back borrowing in response to uncertain growth prospects, tighter financial conditions, and subdued cross-border investment activity,” Asuncion said.

He added that some borrowers may have chosen to reduce existing debt or seek cheaper alternative financing rather than taking out US dollar loans.

“This suggests that the contraction was less about domestic credit constraints and more reflective of weaker external demand and a pause in risk-taking among offshore borrowers,” Asuncion said. “This is a trend that may gradually reverse as global financial conditions ease and trade activity gains firmer footing in the succeeding quarters.”