BSP lifts cap on long-term NCTDs

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has removed the volume limit for offerings of long-term negotiable certificates of time deposits (LTNCTDs) used by banks to raise capital.

BSP deputy governor Nestor A. Espenilla Jr. said in a text message yesterday the P5 billion per issue limit has been lifted, as well as the 300-percent cap on the ratio of total LTNCTDs to outstanding capital.

The new guidelines were approved by the Monetary Board to decrease systemic risks.

LTNCTDs are certificates which show the indebtedness of a bank with a designated maturity. They offer higher interest rates than regular deposits but they cannot be pre-terminated like time deposits. However, LTNCTDs can be traded in the secondary market.

These are peso-denominated instruments with a tenor of at least five years. The BSP stressed that since LTNCTDs have a minimum tenor of five years, they effectively lengthen the maturity profile of funds sourced by banks and may be used to better match against long-term loan exposures.

“Lengthening the maturity profile of deposits has long been a challenge since the majority of deposits in the Philippines are in the form of savings deposits which can be withdrawn by depositors as needed,” the central bank said.

As a result, banks will have to finance loans with funds whose maturity profile is relatively shorter, creating a mismatch in the tenor of assets versus liabilities.