With the peso weak against the US dollar, borrowers stopped prepaying their debts during the first nine months of last year, a reversal from 2013 when prepayments saved them money.
The Bangko Sentral ng Pilipinas (BSP) reported prepayments on medium and long-term foreign loans hit $253.9 million in January to September 2014, a downturn from the $2.866 billion year-earlier amount.
The data pertains to foreign denominated debt payable in five years paid up ahead of the expiration of their payment terms, done to make debts more manageable.
The central bank said that prepayment of foreign loans is a prudent exercise when the local currency shows strength.
However, BSP’s third quarter report on economic and financial development showed that on a year-to-date basis, the peso depreciated against the US dollar by 1.07 percent at end-September 2014, as it closed at P44.88/US$1 moving in tandem with most Asian currencies except the Indonesian rupiah, Malaysian ringgit, Indian rupee, and Thai baht which appreciated vis-a‘-vis the US dollar.
Private corporations accounted for the bulk of payments, reaching $164.7 million, lower than the $2.398 billion prepayments made a year earlier.
The public sector—which includes the national and local governments, as well as state-owned and -controlled corporations—prepaid a total of $89.2 million last year, lower than the $467.8 million recorded in 2013.
In 2013, prepayments of foreign loans hit $2.808 billion exceeding the year-earlier amount as public and private borrowers took advantage of the strong peso.
Private corporations prepaid $2.337 billion, while the public sector prepaid a total of $417 million.