Long-Term Negotiable Certificate of Deposit (LTNCD)

To download the LTNCD Sales Memo, click here.
To download the Preliminary Offering Circular, click here.

1. What are LTNCDs? LTNCDs are negotiable certificates of deposit indicating an amount of indebtedness of a bank with a maturity of five (5) years and longer. The LTNCDs form part of a bank’s deposits and rank senior to all unsecured and subordinated debts, and all classes of equity securities.Bangko Sentral ng Pilipinas (“BSP”) Circular No. 304, Series of 2001, as amended, requires that LTNCDs be denominated in Philippine Pesos, have a minimum maturity of five (5) years, be scripless in form, and registered with a third party Registry Bank maintaining an Electronic Registry Book (“ERB”).Primarily offered through Selling Agents and subsequently transferred through authorized Trading Participants, LTNCDs represent a bank’s obligation to pay its face value upon maturity and the specified coupon or interest during the life of the certificate of deposit.
2. How does it differ from regular Time Deposit? A long-term time deposit cannot be transferred while it is outstanding; whereas an LTNCD may be negotiated even while outstanding but only through the organized exchange where it is listed.
3. Why invest in LTNCDs? LTNCDs are specifically intended to mobilize savings and encourage long-term investment for qualified individual investors as a withholding tax-exempt certificate if held for more than five (5) years. LTNCDs are also negotiable, and can be sold in the secondary market.
4. What are some of the risks involved in investing in LTNCDs? Yield on the LTNCDs is assured if the investor holds the LTNCDs until maturity. If the investor holds the LTNCD for more than five years, then interest is tax exempt. However, if an investor sells the LTNCDs in the secondary market, the LTNCDs will be subject to a price risk depending on the prevailing market rate. Applicable withholding taxes (“WHT”) and other fees may likewise apply.
5. Who are the parties involved in an LTNCD offering? The relevant parties to an LTNCD offering and their respective functions, among others, are:
   • Issuing Bank/Issuer-The bank issuing the LTCNDs and the party that will be primarily indebted to investors
   • Registry Bank/Registrar-Generates and maintains the ERB; records any transfer of ownership; issues Registry Confirmation (“RC”) to holders
   • Paying Agent-Facilitates the credit of periodic interest and principal payments to investors’ accounts
   • Arranger-Disseminates information to prospective depositors/investors of LTNCDs on the terms and conditions of the issue, and the rights and obligations of the holders and other parties in the offer; determines pricing for the primary issue
   • Selling Agent-Issues the Purchase Advice (“PA”) for the primary offering of the LTNCD
6. Can the LTNCDs be used as collateral for loans? Unlike Tier 2 Notes, there is no regulatory restriction to use LTNCDs as collateral for loans; however, this is still subject to internal credit review and policies of the Bank.
7. What are the tax implications of investing in the LTNCDs? Tax on interest income:
   1. Individuals who purchased the LTNCD from the primary market will be tax-exempt, provided that they hold the LTNCD for more than 5 years. These individuals must be:
      • Filipino citizens, whether resident or non-resident
      • Resident aliens, or
      • Non-resident aliens engaged in trade or business in the Philippines
   2. Individuals who purchased the LTNCD from the secondary market will be subject to 20% withholding tax, unless held on to for more than five (5) years.
   3. Domestic and resident foreign corporations and other juridical entities are subject to 20% WHT.
   4. Tax-exempt institutions (i.e. retirement funds, schools, hospitals, churches) will be relieved of applicable taxes provided that they submit a BIR certificate of tax exemption, regardless if purchased on the primary or the secondary market.

   Tax on capital gains:

   Since the LTNCDs have a maturity of more than five (5) years from Issue Date, any gains realized from the sale of the LTNCD will be exempt from capital gains tax.

   Changes in taxation:

   In the event that there is a change in the tax treatment of the LTNCDs because of changes in tax laws or regulations or interpretations thereof, where payments to qualified individual LTNCD Holder would be subject to deduction or withholding for or on account of tax or would give rise to any obligation of the Issuer to account for any tax in the Philippines; and such obligation cannot be avoided by the Issuer taking reasonable measures available to it, the LTNCD Holder agrees that the Issuer will withhold the applicable taxes on the interest income earned by the LTNCD Holder and deduct the same from the proceeds of the LTNCDs to be received by the LTNCD Holder.

8. Who are eligible to invest in the LTNCDs? Any person or entity may purchase the LTNCDs EXCEPT the following prohibited investors:
   • The Bank
   • Subsidiaries and affiliates, of the Bank
   • Wholly or majority-owned or controlled entities of such subsidiaries and affiliates of the Bank
   • U.S. Persons under the Foreign Account Tax Compliance Act (FACTA) of the U.S.
   • Non-resident alients not engaged in trade or business in the Philippines
   • Non-resident foreign coporations

   For purposes hereof, a “subsidiary” means, at any particular time, a company which is then directly controlled, or more than fifty percent (50%) of whose issued voting equity share capital (or equivalent) is then beneficially owned by the Bank and/or one or more of its subsidiaries or affiliates. For purposes hereof, an “affiliate” means, at any particular time, an entity where at least 20%, but not exceeding 50%, of its outstanding voting stock is owned by the Bank. For a company to be “controlled” by another means that the other (whether directly or indirectly and whether by the ownership of share capital, the possession of voting power, contract or otherwise) has the power to appoint and/or remove all or the majority of the members of the board of directors or other governing body of that company or otherwise controls or has the power to control the affairs and policies of that company.

9. Are the LTNCDs being issued as part of an issue program? Will the Bank be issuing any LTNCDs in the future? The Bank has applied for an up to PHP20 billion issue program with the BSP and intends to issue LTNCDs in one or more tranches within one (1) year. The first tranche of the program is an issuance of PHP5 billion of LNTCDs, with an option to upsize depending on client demand.
10. How much is the minimum investment? Minimum investment size of PHP50,000 and in denominations of PHP10,000 thereafter.
11. How do I receive my principal and interest Investors will be required to specify in the Application to Purchase (“ATP”) their preferred mode of payment for the interest and principal. Options include:
    • Credit to investor’s Peso Current or Savings Account with Security Bank
    • Credit to investor’s Peso Current of Savings Account with another bank
    • Credit via RTGS to investor’s account
12. Are the LTNCDs insured? Yes, LTNCDs are covered by the Philippine Deposit Insurance Corporation (“PDIC”), subject to applicable rules and regulations, among others, on a maximum insurance coverage currently up to PHP500,000 per depositor (including CA/SA amounts with the Issuing Bank) in aggregate with any existing deposits with the bank.
13. Can the LTNCDs be pre-terminated by the Holders? No. Holders of the LTNCDs are not allowed to pre-terminate the LTNCDs prior to stated maturity. However, they can transfer their holdings via selling the LTNCDs in the secondary market. Such transfer or assignment will not be considered a pretermination, however, the Bank may treat such transfers or assignment as a pretermination solely for purposes of determining the applicable rate of withholding tax on the interest earned by the transferor-LTNCD holder.If the holder sells his LTNCD prior to maturity, retroactive withholding tax on the interest income may apply based on the number of years the LTNCD were held:
    • 4 years to less than 5 years………………………5%
    • 3 years to less than 4 years………………………12%
    • Less than 3 years………………………………………20%
14. When will investors receive interest payments on the LTNCDs? Investors will receive interest payments on a quarterly basis.
15. Is there tiered or incremental interest rate applied? Unlike a regular time deposits, where the interest rates may increase based on the amount or tenor, the LTNCDs will offer a fixed coupon rate to all investors throughout the life of the LTNCDs.
16. Can an investor still purchase the LTNCDs after the public offering?
17. Yes. After the public offer, an investor can still buy LTNCDs from the secondary market at prevailing market prices. The transaction will be subject to brokerage and other fees.Moreover, if the holder sells his LTNCD prior to maturity, retroactive withholding tax on the interest income may apply based on the number of years the LTNCD were held:
    • 4 years to less than 5 years………………………5%
    • 3 years to less than 4 years………………………12%
    • Less than 3 years………………………………………20%
18. What is the general process of transferring the LTNCDs in the secondary market? In executing a sale of the LTNCDs, holders shall surrender the original PA (Purchase Advice) and original RC (Registry Confirmation) together with the relevant Trade-Related Transfer Form or Non-Trade Related Transfer Form, as the case may be, to the Trading Participant. The proceeds of the sale shall then be correspondingly issued to the selling holder. The Trading Participant shall surrender to the Registrar for cancellation the seller’s original PA and original RC, and shall provide the Registrar with the original new PA issued in favor of the buyer to effect the transfer of ownership in the registry book of the Registrar. The secondary market buyers shall receive the original PA from the Trading Participant and the original RC from the Registrar. The sellers and buyers of the LTNCDs may be charged certain transaction related fees by the Registrar and brokerage fees by the Trading Participant.
19. Is partial sale of LTNCDs allowed? Yes. In the event that the LTNCD holder would like to sell only a portion of their amount, the original RC (Registry Confirmation) should be given to the Trading Participant. The original RC will be cancelled and the Registry will issue two new RCs one with the transferred amount to the new investor, whereas the other will be retained with the original holder but with only the outstanding LTNCD amount.
20. Can we start taking reservations even before the start of the public offer period? Orders for the LTNCDs will only be accepted during the Offer Period.
21. Can someone without a TIN invest in the LTNCDs? No, interested investors are required to have a TIN in order to invest in the LTNCDs pursuant to the Anti-Money Laundering Laws of the Philippines.
22. For joint applicants, do all of them need to sign the ATP, and do all need a TIN? For joint applicants, both parties are required to sign a single ATP and provide their respective identification documents. The ATP should include details of both parties. Only one (1) TIN is required from one of the applicants.
23. Can minors invest in the LTNCDs? Would they be required to have a TIN? The LTNCDs can be made in-trust-for a minor. Minors cannot directly invest in the LTNCDs. The adult applicant is required to provide a TIN.
24. Can the LTNCDs be made in-trust-for a minor? Does the minor need to sign the ATP as well? Yes, the LTNCDs can be subscribed to by parents/legal guardians and be made in-trust-for a minor. In this case, only the parents/legal guardians need to accomplish the ATP.
25. For schools and other tax-exempt institutions who are interested to purchase LTNCDs but their tax exemption certificate/ruling/opinion issued by the BIR is dated, will these institutions still be considered as tax-exempt? A current certified true copy of the original tax exemption certificate, ruling or opinion issued by the BIR can be accepted.
26. What happens if the LTNCD Holder dies? The LTNCDs will be governed by the relevant provisions of the New Civil Code of the Philippines regarding inheritance and succession.
27. For provincial branches, is there an earlier internal deadline to submit documents? All branches will adhere to the same deadline.

1. How long is the offer period of the LTNCD? The Offer Period will commence on or about August 12, 2019 and end on or about September 04, 2019, with settlement on or before September 06, 2019. The Bank reserves the right to close the Offer Period at an earlier or later date subject to discussion between the Bank and the Joint Lead Arrangers.
2. How does an investor participate in the public offer period? The LTNCDs will be offered throughout the Offer Period during which, an Application to Purchase (ATP) forms will be provided by the Selling Agents.Investors must complete the ATP forms and submit four (4) copies to the relevant Selling Agent together with other required documents and the corresponding payment. Investors will be subject to account opening and “know-your-customer” procedures of each Selling Agent. For Security Bank clients, this will include completing the Client Suitability Questionnaire (CSQ), which is also available on the website.Investors can receive the ATP and the CSQ by submitting interest on the Security Bank website: www.securitybank.com/ltncd Otherwise, these may also be obtained at your nearest Security Bank branch.Investors must designate a Philippine peso account (subsequent to the execution of special power of attorney, where applicable) where interest and redemption of the LTNCDs will be credited.For corporations, originals or certified true copies of the board resolutions indicating authorized signatories and specimen signatures shall be required.The Joint Lead Arrangers and Selling Agents, on behalf of Security Bank, reserve the right to accept, reject, scale down or re-allocate any Application to Purchase the LTNCDs. In the event of oversubscription, investors may receive allocations lower than the investment amounts indicated by them during the public offer period. Payments made by investors whose applications are scaled down or rejected are returned in proportionate amount (in case of scale down) or in full (in case of rejection). Refunds do not carry any interest.Upon confirmation of the final allocation, the Selling Agents will issue a Purchase Advice (PA) to investors to evidence their purchase of the LTNCDs. The PA carries the terms and conditions of the sale of the LTNCDs.The Registrar will then issue and distribute the relevant Registry Confirmation (RC) to the investors. The Registrar will prepare and maintain the Registry Book and record the initial issuance and subsequent transfers of ownership of the LTNCDs.
3. What is the investor’s proof of ownership of the LTNCD? Since the issue will be in scripless form, no time deposit certificates will be issued to the LTNCD Holders. Instead, each investor will be receiving an RC from the Registrar certifying the investment in the said CD in his name.The Registry Confirmation will be sent by the Registrar to the address indicated in the PA based on the ATP of each investor. The best evidence of ownership will, in all circumstances, be the Registry Book maintained by the Registrar.
4. Can investors cancel their purchase of the LTNCD? Within two (2) Business Days from submission of the duly executed Application to the Issuing Bank (the “Cooling-Off Period”), the Applicant, who is a natural person, is allowed to cancel, in whole or in part, the application to purchase of the LTNCDs by providing the relevant Selling Agent within the same period a written notice of such decision to cancel the LTNCDs (the “Written Notice of Cancellation”) indicating in such written notice: (a) the amount of the LTNCDs to be cancelled, (b) the amount of the LTNCDs to be retained (so long as the same complies with the minimum denomination requirements under the Terms and Conditions), and (c) the reason for such cancellation.
5. Can an investor change any details after settlement? Investors may only change “non-static” data such as address, contact details and bank account details. A change in the investor name will already constitute a transfer of the LTNCD and should be coursed through the PDEx Trading Participants.