The window for Philippine banks to raise billions of pesos from the retail offering of long-term negotiable certificates of time deposits (LTNCDs) will close by next year, prompting them to turn even more to bonds to generate long-term money.
The Bangko Sentral ng Pilipinas (BSP) has drafted a new circular which seeks to impose a moratorium on the offering of LTNCDs, except for those already approved this year.
The draft has been circulated to the banks for feedback, said banking sources who have read the circular.
LTNCDs offer higher yields compared to regular time deposits or savings accounts as interest is tax-free if the instrument is in the name of an individual holder and held for over five years.
The BSP could be doing this to align with the fourth package of tax reforms, under which tax incentives on long-term instruments will be phased out, a bank treasurer of a big local bank said.
In a recent roundtable discussion, Finance Undersecretary Karl Kendrick Chua said the removal of tax incentives on long-term incentives could affect LTNCDs, but he noted that it was mostly the wealthy who tended to put money in these instruments.
For many of the big banks that have recently issued LTNCDs, the minimum investment is usually P50,000 or P100,000.
The BSP is seen more confident to take out LTNCDs now that it has eased collateral restrictions on the offering of bonds as long as these are traded in an exchange, allowing a number of big banks to debut on the local bond market in recent months.
Previously, the BSP required banks to set aside government securities as collateral for 100 percent of the bonds they would issue. If they will use collateral other than risk-free government securities, the value must exceed that of the issue size.
“But our concern is that LTNCD is one of the few things where banks are able to term out their liabilities. So, I just want to be sure that if they take it out, there’s real access for banks to access long-term liabilities,” the bank treasurer said.
ING Philippines chief Hans Sicat said in an interview: “This is one less instrument for retail investors and one less kind of funding mechanism for banks, but it’s not necessarily bad. There’s always a market or investor base for each type. I don’t think it’s a choice between one or the other. If you’re a bank treasurer, you’ll do both.”
Offering LTNCDs is also seen as a much easier exercise compared to a bond offering, where banks need to hire underwriters.
Another consideration is whether banks want to source more of their funding from institutional rather than retail investors.
“In theory, bonds can include both, but generally the retail guys focus on LTNCDs. It’s not necessarily bad: it will just shift your constituent base,” Sicat said.
Sicat added that bonds were more tradable, which meant that as more banks floated bonds, this would help deepen the capital market.