MANILA, Philippines—Security Bank Corp. has raised P5 billion in fresh funds for expansion from the issuance of long-term negotiable certificates of deposit (LTNCD) at an interest rate of 5.5 percent per annum for a seven-year tenor, the first in local banking history.
Citing warm response to this LTNCD offering, the bank announced on Tuesday that it had closed the offer period earlier than the original February 10 target closing. The issue date for the LTNCDs is February 17.
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. By using the LTNCD structure, which is tax-free because of the long tenor, banks can offer better yields to clients.
“The success of our LTNCD offering is credited to the strong support of our clients and it is a testament to our willingness to develop the kind of products that cater to the needs of the market. We are encouraged even further as it comes on the heels of a year during which we clearly surpassed our targets,” Security Bank president and chief executive officer Alberto Villarosa said in a press statement.
“This offering is unprecedented in Philippine banking history as it is the first ever seven-year LTNCD to be offered in the country,” said Security Bank treasurer Raul Pedro.
Most LTNCD offering by banks have a tenor of a little over five years.
“We thank our clients for their strong reception for our LTNCDs. We undertook this endeavor because we believe that there is a strong demand in the market for alternative investment instruments that could deliver higher yields. Clearly, the market’s appetite for our LTNCDs confirmed that and their response was encouraging,” Pedro added.
With the issuance of LTNCDs, Security Bank has expanded its deposit base and strengthened its balance sheet by having longer-term liabilities in its books. As the LTNCDs form part of a bank’s deposits, they are insured with the Philippine Deposit Insurance Corp.
Deutsche Bank, AG Manila Branch and Standard Chartered Bank acted as joint lead arrangers and selling agents for the transaction. Multinational Investment Bancorporation also acted as selling agent.
Security Bank recently reported an unaudited net income of P6.7 billion and a return on equity of 25 percent for the full year 2011.