This article didn’t make much of a splash in the news as it looked like a simple product PR blah, but for most people who follow personal finance developments, it’s a sign banks are (finally) admitting Filipinos are tired of plain-vanilla deposit products and are looking for better returns on their money.
The article talks about AIG Philam Savings’ 5-year long-term negotiable certificates of deposit launched Wednesday.
Pulitika, Kalakalan, ATBP. pointed out that UITFs are declining in volume because of LTNCDs. There must be a huge volume of cash being shifted, because as of now, only two universal banks and one thrift bank has issued LTNCDs – BDO, BPI and AIG Philam Savings Bank.
AIG Philam is offering P3 billion worth of LTNCDs over a 12-month period, P1 billion in July. The bank will pay interest quarterly, unlike previous LTNCD offers. This offering will be tax-free if held until maturity or until 2012. Interest is fixed at 7.25% per annum.
LTNCDs are bond-deposit hybrids, so they are less risky than stocks. They are guaranteed by the PDIC up to P250,000 per depositor. They are negotiable, meaning they can be sold before maturity but once that’s done, goodbye favorable tax treatment.
At 7.25% per annum, AIG Philam’s LTNCD (only banks will name a product that way!) gives slightly higher returns compared with time deposits
The 5-year Retail Treasury Bond gives 7.125%, so there’s not much difference there. By the way, the Bureau of Treasury’s public offering of RTBs close on Monday.
All told, you don’t need to be a rocket scientist to know that LTNCDs may deserve a “good” rating and it could even be “very good” depending on the issuer. But “superior”? Not really.
July 30th, 2007 at 1:47 pm
mart, sorry to hear that. I would feel the same way you do. Maybe institutional investors got a bigger share of the pie. Let’s ask the AIG guys…
July 30th, 2007 at 1:46 pm
sorry, that was for honey bunny!
eulem, thanks for sharing your experience. would you rate PNB’s service after you invested in their product?
July 30th, 2007 at 1:45 pm
eulem, unfortunately their websites do not indicate the rates for their LTNCDs. I could go into a rant on how much banks are really willing to do to serve their clients online, arggg. Let’s see if we can get the data via their phone banking services…
July 30th, 2007 at 1:36 pm
angie, i think you know what I’m talking about dearie but thanks for the chance to explain :-). It has to do with the credit rating of the issuer. Generally, the Philippine government (despite its humongous budget deficit) is, within the economy, the one with the highest rating. Banks and corporates vary in terms of soundness, so a thrift bank may, for me, get a “good rating” like AIG Philam because it’s under the umbrella of the AIG group, but still it is a thrift bank. BPI and BDO are both bigger banks with perceived good names. There is a whole spectrum of banks and issuers out there. You won’t catch me putting my money in a rural bank that I haven’t checked thoroughly. Default risk is in the works of very analysis all the time.
RTBs, LTNCDs both have a place in every investor’s portfolio. I remember polling former central bankers on their personal investments and almost all of them bought government securities and bonds. These instruments spread the risks. But if you are looking for a “superior” investment instrument, for me I would rather go for RTBs than LTNCDs. That’s what I meant.
July 30th, 2007 at 12:40 pm
I send my wife to PHILAM Bank Alabang Branch to inquire this product but sold out na raw. Imagine after I read in your paper the nexy day sold out na. What is the use of selling it to the public anyway?
Sana naman pag bibigyan ang mga maliit na investor, Unlike with PNB sila pa ang tumatawag noon sa kanilang clients