BSP eases rules on tradable long-term time deposits

The Bangko Sentral ng Pilipinas (BSP) has relaxed rules on tradable time deposit certificates to give banks more stable sources of funding amid increased demand for loans from businesses and households.

The regulator this week announced the lifting of several restrictions on the issuance of banks of Long-Term Negotiable Certificates of Time Deposits (LTNCD).

“The gains of having more long-term deposits should ultimately accrue to the borrowing public,” BSP Governor Amando M. Tetangco Jr. said in a statement.

The previous cap of P5 billion per transaction of LTNCDs was lifted, the BSP said. The previous restriction on the amount of outstanding LTNCDs a bank could have of up to 300 percent of the bank’s capital was also removed. The maturity floor of five years was retained.

Apart from the removal of restrictions, the BSP also introduced new rules that aimed to improve the accountability of issuing banks.

The BSP said that once the issuance of LTNCDs was approved by the Monetary Board, these securities had to be sold within six months. This ensures that banks will structure an LTNCD issue size that they believe they can sell.

It also raised the reserve requirement for the deposit instruments from 3 percent to 6 percent of the outstanding size of a bank’s outstanding LTNCDs.

All LTNCDs would also have to be listed on an accredit exchange, where these instruments can be traded. “This is consistent with the fact that an LTNCD has investment-like features and can be traded before its date of maturity,” the BSP said.

The listing requirement is aligned with global best practices on marketable securities because this enhances transparency, instills price-discovery, and protects investors.

LTNCDs are seen as a more stable source of funding for banks. Most of the funds that banks lend to the public are made of current and savings account or Casa deposits, which clients can withdraw any time.

The BSP said lengthening the maturity profile of deposits had long been a challenge since the majority of deposits in banks were in the form of Casa accounts. The BSP said banks had to finance long-term loans with funds whose maturity profile was shorter.

This creates a mismatch in the tenor of assets versus liabilities and banks address this by having the interest rate on long-term loans reset yearly.