MANILA, Philippines—Yuchengco-led Rizal Commercial Banking Corp. (RCBC) plans to raise P1.15 billion from the issuance of additional high-yielding long-term deposits.
In a disclosure to the Philippine Stock Exchange on Monday, RCBC said it would issue by May a new tranche of long-term negotiable certificates of deposits (LTNCDs) with a tenor of five years and a half at a coupon rate of 5.25 percent per annum.
RCBC last raised P3.85 billion from the issuance of LTNCDs in December last year in an offering that was arranged by Deutsche Bank and ING Bank, which were likewise mandated to arrange this new tranche of LTNCDs.
The issuance of LTNCDs is part of RCBC’s liquidity management efforts to match term assets with term liabilities. The bank saw an opportune time to access long term funding given the prevailing low interest rate environment and ample liquidity in the financial system.
LNTCDs are slapped by the Bangko Sentral ng Pilipinas with a lower reserve requirement of 3 percent compared to the usual 21 percent requirement against the usual deposit liabilities of banks, giving banks a lot of incentive to offer such long-term savings products.
On the other hand, holders enjoy a tax exemption if the instruments are held to maturity. Unlike the regular time deposits, investors are required to hold the LTNCDs until they mature. But since these instruments are negotiable, they are transferable to market makers or to the Philippine Dealing and Exchange Corp. They are covered by the Philippine Deposit Insurance Corp. up to the limit of P500,000 per depositor.
Proceeds from the sale of LTNCDs are used by banks to fund their lending activities, thereby growing their loan portfolios and raising revenues through the interest earned on those loans.
Apart from RCBC, some banks that have tapped the debt markets so far this year include the Land Bank of the Philippines, Security Bank Corp., BDO Universal Bank, the Philippine Savings Bank and the Development Bank of the Philippines.
Most of these financial institutions go to market to take advantage of the prevailing low interest rate regime brought about by the high level of liquidity in the local and international financial systems.
Originally posted: 1:52 pm | Monday, April 23rd, 2012