• Weak peso in Q1 pulls down debt prepayments


    Debt prepayments by both public and private borrowers were lower in the first quarter of this year, according to Bangko Sentral ng Pilipinas (BSP) data.

    The reason for it seems to be the relatively weak state of the peso in the first three months of the year. The average peso-US dollar exchange rate in the first three months of this year, according to BSP data, was P47.29 to $1or 6.1 percent lower than the P44.42 to $1 average in the first quarter of 2015. The decline in prepayments did in fact correspond to the weaker peso.

    Prepayments on medium and long-term foreign loans, BSP reported, hit $1.17 billion over January to March 2016, down 20 percent from to the $1.47 billion recorded in the same 2015 period.

    The data pertains to foreign-denominated debt payable in five years that was settled ahead of schedule. Prepayment is done to make debts more manageable and the central bank has said that doing so for foreign loans would be a prudent exercise when the local currency showed strength.

    The public sector—which includes the national and local governments as well as state-owned and -controlled corporations—accounted for the bulk of the prepayments.

    Public sector prepayments totaled $1.132 billion for the period, 11.8 percent lower than the $1.284 million prepayments recorded a year earlier.

    Private corporations, meanwhile, prepaid a total of $46.8 million, 75.4 percent lower than the $190.9 million seen in 2015.

    “I think it is a sign that corporates are very much aware of the possible changes in the global environment,” said Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands.

    He pointed out that interest rates remained relatively low and exchange rates stable.

    Prepaying loans could mean corporations were trying to whittle down debt or pay it off altogether in anticipation of possible changes to the downside, Mapa noted.

    “Before rates begin to rise fast or the peso depreciates substantially, it may be best to make payments while times are still good. It would make for smoother sailing if things do turn for the worse,” he said.



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