Moody’s affirms Security Bank’s rating, outlook

MOODY’S INVESTORS Service affirmed Security Bank Corp.’s long-term debt rating of Baa2, citing the lender’s strong capitalization and profitability.

In a Dec. 14 credit opinion, the debt watcher also retained its “stable” outlook for the bank’s rating, which means the grade could be retained for the next 12 to 18 months.

Moody’s said the rating reflects their assumption of moderate level of systemic support from the government given Security Bank’s position as one of the biggest medium-sized banks in the Philippines.

It said the bank’s credit strengths lie in its “robust capitalization” and “stable profitability, supported by lower cost of funds.”

“Our strong capital position is an important pillar which both our clients and employees can rely upon to weather the challenges brought by the COVID-19 pandemic. That capital will be deployed to support our clients’ pandemic recovery efforts, employee health and safety initiatives, and investments in systems and technology,” Security Bank President and Chief Executive Officer Sanjiv Vohra said in a separate statement on Thursday.

Moody’s said an upgrade for the bank’s rating is unlikely in the near future as its Baa2 grade already matches the country’s sovereign rating. Following this, a downgrade of the country’s rating could also lead to a lower rating for the bank.

“A significant decline in capitalization as a result of excessive loan growth could also exert downward pressure on its BCA and ratings,” it added.

Moody’s expects the bank’s capitalization to remain robust. As of Sept. 30, Security Bank’s common equity Tier 1 ratio rose to 19.1% from 17.1%, as slower risk-weighted asset growth more than offset weaker internal capital generation.

Meanwhile, it flagged that the bank could see a further deterioration in asset quality amid the coronavirus pandemic. It noted the lender’s significant loan book exposure to pandemic-hit sectors such as retail (16%), construction (2.1%), agriculture (3.7%), and transportation (3.2%) as of end-2019.

Moody’s added that the bank’s consumer loans, which accounted for 26% of the total portfolio as of end-September, are also sizable.

“These loans are riskier as they are unsecured and retail borrowers tend to have limited buffers to withstand a prolonged cash flow crunch amid the economic downturn,” the report said.

Security Bank’s net profit slumped to P1 billion in the three months to September from P2.7 billion a year earlier due to higher loan loss reserves. This caused the lender’s nine-month net earnings to go down 12.9% to P6 billion.

The bank’s shares ended trading at P141 apiece on Thursday, down by 1.88% or P2.70 from its previous close. — Luz Wendy T. Noble