UnionBank to offer tax-free, high-interest LTNCD

James Ryan Jonas

UnionBank of the Philippines (UBP), owned by the Aboitiz Group, announced last week that it is planning to offer to the public PHP 5 billion worth of tax-free, high-yielding Long-Term Negotiable Certificate of Deposits or LTNCDs.

What are LTNCD?

An LTNCD is a deposit product used by banks to raise additional capital. It shares various similar characteristics with time deposits but also differs in several ways.

To understand better what an LTNCD is, let’s break down the terms comprising its name.

Long-Term. An LTNCD is a long-term investment product, with maturity of at least five (5) years. Unlike time deposits that have relatively shorter maturities of less than one year, LTNCDs must be held by the account owner for more than five (5) years. The waiting period is surely long, but the good side of that is that it becomes tax-free. This is because time deposit products with maturities of at least 5 years and 1 day do not have to pay the tax on interest income anymore. This consequently give the depositor a relatively higher yield.

Negotiable. LTNCDs cannot be pre-terminated, which means customers must wait for the maturity date before they can get their money back. However, LTNCDs are transferable and negotiable which means customers can sell their LTNCDs to other willing buyers if they already want to cash in. The buyer then becomes the new owner taking possession of the certificate of deposit with the right to receive all interest income in the future and the final return of capital.

Certificate of Deposit. “Certificate of deposit” is another term for “time deposit” which is why LTNCDs appear to be very similar to other time deposit products. As a time deposit product, the amount invested is guaranteed by the Philippine Deposit Insurance Corp. (PDIC) up to PHP 500,000, in case of bank holiday or bank default.

UnionBank LTNCD Offering

According to UnionBank of the Philippines, they are planning to raise around PHP 5 billion by issuing LTNCDs in the coming months. As of this writing, however, the company has not announced yet the final interest rate or deposit tenor.

We will update this post once the final details of the LTNCD offering have been announced.

LTNCD issuance of other Philippine banks

The LTNCD issue will be the first for UBP, but other local banks have previously used LTNDs to raise additional capital. Here are links to our past articles that dealt with LTNCD offerings of other banks.

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.