BDO offers 7-year LTNCD

James Ryan Jonas

It seems like more and more local banks are preferring the use of Long-Term Negotiable Certificates of Deposits (LTNCD) as a way of raising additional funds. Instead of issuing more shares or launching a new debt instrument, banks in the Philippines are resorting to LTNCDs which consumers find more attractive because they are relatively safe yet high-yielding compared to traditional deposits.

The most recent to join the LTNCD bandwagon is Banco de Oro (BDO), the Philippines’ largest bank in terms of assets, deposit liabilities, and client base.

In the past, East West Bank, Security Bank, RCBC and UCPB also issued their own LTNCDs which paid between 5.25% to 5.875% interest rate per annum.

BDO LTNCD Offering

Last week, BDO announced it is issuing to the public up to P5.0 billion worth of LTNCDs. The offer period lasts until October 5, Friday, while the issue date is set on October 15. BDO, however, may extend the offer period if they see fit.

Minimum investment is P100,000 while additional investments may be done in increments of P50,000.

The interest rate will be finalized upon conclusion of the offer period but the indicative interest rate is between 4.875% and 5.25%. Interest will be paid to investors on a quarterly basis.

BDO’s LTNCD matures after seven (7) years. They cannot be preterminated but are negotiable, meaning, they can be sold to other investors prior to maturity.

The LTNCDs are tax-exempt if retail investors hold on to them for at least five (5) years.

More about LTNCD Investing

What are LTNCDs?

LTNCDs are negotiable certificates of deposit indicating an amount of indebtedness of a bank with a designated maturity. The LTNCDs form part of a bank’s deposits and rank senior to all unsecured and subordinated debts, and all classes of equity securities.

Are LTNCDs different from time deposits?

They are similar in a way but differ primarily in the negotiability of the instrument. A long-term time deposit cannot be transferred during its life, while there is a market for LTNCDs should the holder wish to sell it prior to maturity date. More discussion about the differences of LTNCDs with other investment products can be found in the article Investing in LTNCDs.

Are LTNCDs insured?

Yes, LTNCDs are covered by the Philippine Deposit Insurance Corporation (PDIC), subject to applicable rules and regulations, on a maximum insurance coverage up to P500,000 per depositor.

What tax implications apply to retail LTNCD investors?

Individual investors of LTNCDs are free and clear of any withholding taxes if held for more than 5 years. The documentary stamp tax on the primary issuance of the LTNCDs is for the account of BDO.

What taxes are charged if LTNCDs are transferred in the secondary market?

In case of transfers in the secondary market, the individual LTNCD holder shall be liable for the resulting tax due on the entire interest income earned on the LTNCDs at graduated tax rates, based on the holding period:

  • Less than three years – 20%
  • Three to less than four years – 12%
  • Four to five years – 5%
  • Five or more years – 0%

What taxes apply to non-individual investors?

Interest income on the Notes by non-individual investors are subject to a final tax at the following rates:

  • Non-resident alien individuals not engaged in trade or business in the Philippines – 25%
  • Domestic and resident foreign corporations – 20%
  • Nonresident foreign corporation – 35%

Source: Banco de Oro LTNCD Prospectus

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James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.