Aboitiz-led Union Bank of the Philippines is hatching two funding instruments that would allow it to raise as much as P70 billion, allowing the bank flexibility to expand its loan book and help oil the needs of a growing economy.
In a disclosure to the Philippine Stock Exchange on Monday, Union Bank said its board had approved the issuance of long-term negotiable certificates of deposit (LTNCDs) amounting to as much as P20 billion, subject to approval by the Bangko Sentral ng Pilipinas.
The board has also approved the setting up of a euro medium term note (MTN) program in the aggregate amount of up to $1 billion (P50 billion).
“We have one year to issue the LTNCD,” Union Bank president Edwin Bautista said in a text message. “Proceeds will help lengthen our funding maturity profile and allow us to meet our customers’ need for longer tenor loans.”
LTNCDs are time deposits, but have longer maturity and carry higher yields. While they cannot be pre-terminated unlike regular time deposits, they are negotiable so they can be sold in the secondary market to other investors. Interest income on these LTNCDs is tax-free if held for at least five years. They are also covered by a deposit insurance up to a maximum of P500,000 per depositor.
On the other hand, MTN is a type of medium-term, flexible debt program that allows an issuer like Union Bank to tailor its debt issuance to meet its financing needs. A euro MTN is traded and issued outside of the United States and Canada.
“The EMTN is a continuous program. (There’s) no time limit—until the $1-billion total amount is exhausted,” Bautista said.
Last year, Union Bank’s net profit surged by 67 percent to P10.1 billion on the back of higher interest earnings, fee-based income and profit from the sale of securities. This translated to a return on equity of 16.9 percent last year, an improvement from 10.9 percent in 2015, and the highest among banking peers.
In the first semester, Union Bank’s net profit amounted to P4.36 billion compared to P3.92 billion in the same period last year.
This year, Union Bank aims to grow its loan book by at least 30 percent, following a 31-percent expansion last year to P235.4 billion. The bank is also aiming for “zero trading gains” this year as all earnings are targeted to come from recurring earnings such as from net interest income and fee-based businesses.