UnionBank shifts to corporate bonds for fund raising

UNIONBANK of the Philippines, Inc. will no longer tap its long-term negotiable certificates of deposit (LTNCD) program as the lender can now raise fresh funds through corporate bond issuances.

UnionBank Treasurer and Chief Financial Officer Jose Emmanuel U. Hilado said the Aboitiz-led lender will no longer use its LTNCD facility since raising funds through peso fixed-rated bonds is easier for local banks.

“No, because this (peso fixed-rate bond) is a better instrument,” Mr. Hilado told reporters following the listing of its P11-billion peso bond at the Philippine Dealing and Exchange Corp. last week, adding that LTNCDs carry higher reserve requirements and entail prior central bank approval.

“[A peso bond] has a 6% reserve requirement compared to the 8% of the LTNCD.”

Circular No. 1010 issued by the Bangko Sentral ng Pilipinas (BSP) in August sim-

plifies the process for universal and commercial banks looking to raise funds via bonds, aligning the industry with standards for other privately-owned firms.

The reform forms part of streamlined rules designed to deepen capital markets.

“Unlike LTNCDs, the bonds don’t need prior BSP approval, so I think that’s one of the reasons why the BSP came up with this product. It’s a more efficient product,” Mr. Hilado said.

Following the central bank’s simplified rules on banks’ fund raising, UnionBank and other lenders such as Metropolitan Bank & Trust Co. and Bank of the Philippine Islands established their own peso bond and commercial paper programs. For the first tranche of its own program, UnionBank raised P11 billion.

LTNCDs, like regular time deposits, offer higher interest rates but cannot be pre-terminated. Instead, these can be sold at the secondary market. In February, UnionBank raised P3 billion through LTNCD issuance, part of its P20-billion program approved by the BSP. UnionBank booked a P6.1billion net profit in the first nine months, lower than P6.4 billion a year ago, due to higher rates and its inability to issue loans for teachers.

Shares in UnionBank closed flat on Thursday at P65 apiece.