Fitch affirms PHL’s Security Bank at 'BB' on stable outlook

Fitch Ratings on Wednesday said it has affirmed Philippines-based Security Bank Corporation's long-term foreign-currency issuer default rating (IDR) at 'BB'.

 

The bank’s national long-term rating was also affirmed at 'AA-(phl)' and viability rating at 'bb'. “The outlook is stable,” Fitch noted in an emailed  statement.

 

“Security Bank's ratings reflect its modest franchise in the Philippine banking system (2.9 percent market share by assets) and loan concentration,” credit rating agency said.

 

“They also reflect its strong capital position, satisfactory funding profile, as well as firm underlying profitability and asset quality,” it added.

 

The composition of Security Bank’s corporate and middle-market loans remained high at over 90 percent of total loans. 

 

“In Fitch's view, Security Bank may be susceptible to a rapid rise in delinquencies and potentially high losses under tough credit conditions,” the credit rating said.

 

“This, together with a weakened loss absorption capacity, may be negative to its risk profile and ratings. The risks could also be heightened if the bank expands aggressively to build market share,” it added.

 

In terms of near-term downward rating risk, it appears low for Security Bank 

 

However, downward rating risks appear low in the near term based on its stable outlook.

 

The bank has reported a low level of non-performing or soured loans (NPL), that Fitch attributed to Security Bank’s “reasonable underwriting track record.

 

“Moreover, the bank has strong buffers from high-quality core capital and loan loss reserves, with core Tier 1 capital adequacy ratio and NPL reserve coverage at 18 percent and 311 percent, respectively, at end-2011 (domestic peer-average: 13 percent, 102 percent),” Fitch added.

 

Despite an increase in the loans-over-deposit ratio to 82 percent, as of end-March 2012, from 74 percent at the end of 201, Fitch noted the bank keeps a fairly liquid balance sheet.

 

“Security Bank's profitability may moderate from its high levels in 2011 and [in the first quarter of 2012] due to tighter margins on competition in corporate lending and lower trading income,” the Fitch statement read.

 

“On balance, this may be partly offset by efforts to expand loans in the consumer and SME sectors and low-cost deposits, supported by an expanding branch network,” it said.

 

“Upward rating momentum could result from a stronger domestic franchise, increased loan diversity and earnings stability over the long-term,” credit rating agency added. — VS, GMA News