Fundamental ViewAS OF 17 May 2023
- Security Bank is rated Baa2 (stable) by Moody’s; MUFG is a 20% shareholder.
- Capital ratios have fallen as the bank refocused on loan growth, but levels remain comfortable and are one of the highest among Philippine bank peers.
- Rapid expansion of the retail book pre-pandemic led to a large hit to asset quality when COVID-19 struck. The bank completed working through its risk issues around end-2021 and resumed growth in the retail book since, a positive development after two years of ceding market share.
- The bank has a less well-established deposit franchise than most peers, resulting in a lower NIM uplift despite rising rates. This has led it to focus growth on higher yielding segments to improve the NIM, and has formed a new business banking segment in 2022 to cater to MSMEs.
Business DescriptionAS OF 17 May 2023
- Security Bank was established in 1951 and obtained its universal banking license from the BSP in 1994. It is today the 9th largest bank in the Philippines.
- The bank is majority-owned by longtime owner Frederick Y. Dy (23.7%) and MUFG Bank (20%), which acquired its stake in April 2016.
- SB Finance, a joint venture between Security Bank and Thailand's Bank of Ayudhya (Krungsri), a consolidated subsidiary of MUFG, was launched in 2019. The unit is a consumer finance company formed to engage in the unsecured loans business in the Philippines, focusing on the lower mass retail segment.
- Security Bank's loan portfolio has a 26% retail and 74% wholesale split as of 1Q23.
Risk & CatalystsAS OF 17 May 2023
- Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would have a negative impact on Security Bank’s credit ratings.
- The bank’s weaker deposit franchise has meant greater funding cost pressure and NIM compression despite the higher rate environment. As such, it is approaching growth more selectively this year, focusing on higher yielding customers which includes its newly formed business banking segment that caters to MSMEs, and trimming expensive deposits. We are watchful of how quickly this segment grows given the bank’s past mishap in its retail expansion pre-pandemic.
- Persistent inflation and the BSP’s steep rate hikes are likely to put some pressure on growth and asset quality this year.
Key MetricsAS OF 02 Jun 2023
CreditSights ViewAS OF 18 May 2023
Security Bank has historically been a wholesale focused bank, but it has grown in retail in the years leading up to the pandemic. Rapid expansion however led to a large asset quality hit when COVID-19 struck. Management turned conservative and built up the CET1 ratio which is a key credit strength. Retail growth has resumed in 2022 after a revision of its underwriting processes. However, the expected NIM uplift has been slow to come through despite rising rates as funding cost pressure is higher due to SECB’s weaker deposit franchise. To protect NIM, management is shifting the loan mix towards higher yielding segments, including via a newly formed MSME unit, which makes us cautious. Persistent inflation and steep rate hikes are also likely to put some pressure on AQ. We have an U/P reco.
Recommendation Reviewed: May 18, 2023
Recommendation Changed: November 18, 2022