Security Bank to face asset quality risks due to large retail loan portfolio

SECURITY BANK Corp. will continue to face asset quality pressures this year mainly due to its “troubled retail portfolio,” S&P Global Ratings said on Friday.

“The bank has aggressively expanded into retail banking during the past five to six years, with its consumer banking portfolio reaching 28% of the overall loan book at its peak in December 2019, compared with 5% at end-2013. About 15% of the retail book is from unsecured retail products such as credit cards and personal loans,” the debt watcher said in a note.

Consumer loans make up 25% of Security Bank’s credit portfolio, higher than the industry average of 19%, it noted.

S&P also noted the bank’s elevated credit cost, which it expects to go beyond the industry average. The bank’s credit costs reached P26.4 billion or 4.7% of its gross loan book in 2020 from just P4.2 billion or 1.3% of the total in 2019.

“In our base case, we project Security Bank’s credit costs will be 2%-2.5% of gross loans in 2021, compared with our industry forecast of 1.7%,” S&P said.

The debt watcher said factors that buoyed the bank in 2020, such as a rise in net interest margin (NIM) and better trading gains, are “unsustainable” this year.

“Security Bank’s earnings in 2021 are likely to stay weak owing to a shrinking NIM, unrepeated trading gains, as well as still-elevated credit costs. We forecast a 20-25 bps compression in NIM in 2020, barring further cuts in the reserve requirement ratio,” it said.

The bank’s performance will depend on the country’s economic recovery, S&P said. Elevated credit costs and a prolonged period of weak earnings will be key risks to the bank’s capital strength, it added.

However, despite asset quality risks, S&P said Security Bank will likely continue to log a capital adequacy ratio within 11.5% to 12% in the next two years, still above the required minimum.

Security Bank booked net earnings worth P7.4 billion last year, dropping 26.7% from the 10.1 billion seen in 2019 as it boosted its loan loss provisions amid the pandemic.

Its shares finished trading at P128.10 apiece on Friday, down by P1.40 or 1.08% from its previous close. — L.W.T. Noble