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While Security Bank Corp. shows overall financial stability, credit rater Moody’s Ratings revised its outlook on the bank’s ratings to negative, citing lingering risks, including the decline in its capital buffer, rapid loan growth, and reduced ability to absorb losses.
“We revised the outlook on Security Bank’s deposit, issuer and senior unsecured ratings to negative from stable mainly because of negative pressure on the bank’s capital buffer,” Moody’s said in a statement released April 15.
“The rating action also considers the potentially negative impact of the bank’s strong loan growth and weakened ability to absorb future losses, under our environmental, social and governance (ESG) framework, because it reflects Security Bank’s relatively aggressive financial strategy and risk management, which could negatively impact the bank’s credit profile,” it explained.
Moody’s also pointed to errors in the bank’s 2023 and 2024 audited financial statements. Despite immediate correction, the errors revealed “weaknesses in the bank’s internal controls relative to peers, potentially raising operational risk.” This is reflected in the bank’s moderate governance profile score of G-3.
Prior to this revision, Moody’s affirmed Security Bank’s Baa2 long-term and P-2 short-term ratings across its deposit, issuer, and counterparty risk categories. The bank’s baseline and adjusted credit assessments were also maintained at baa3.
It also maintained the bank’s (P)Baa2 rating for its foreign-currency medium-term note program and its (P)P-2 short-term rating.
These affirmations stem from Moody’s findings that the bank has average financial stability in terms of solvency and liquidity. However, the bank’s funding structure is weaker compared to its peers, which was also considered in the ratings decision.
Meanwhile, the outlook revision to negative from stable “reflects our expectation that the bank’s capitalization, measured by tangible common equity as a percentage of risk weighted assets (TCE/RWA), will remain under negative pressure.”
Security Bank’s performance
As of 2024, the bank’s capital buffer dropped to 13.7 percent from 17 percent the year before, driven by a sharp rise in loan growth to 25 percent from just seven percent in 2023.
The bank’s planned acquisition of a minority stake in consumer lender Home Credit Philippines is also expected to further trim its capital ratio to below 13 percent.
Analysts noted that loan growth outpaced return on equity in 2024 and warned that the bank’s capital levels could continue to fall if strong credit expansion persists over the next 12 to 18 months. For 2025, loan growth is projected to ease to around 10 percent.
Its asset quality improved in 2024, with stage 3 loans falling to below three percent and stage 2 loans dropping to under five percent, supported by strong loan growth. However, the rapid expansion in retail lending over the past two years raises concerns about untested credit risk.
The bank’s loan loss reserves dropped to 81 percent of stage 3 loans, below the 97-percent average for rated Philippine banks.
Security Bank’s net income as a percentage of tangible assets remained steady in 2024. Although the bank’s net interest margin improved, the gain was offset by higher credit costs, as loan loss provisions increased. Credit costs are expected to stay elevated over the next 12 to 18 months.
Its funding structure weakened slightly in 2024, with increased reliance on market funds to support loan growth and protect margins. At the same time, the share of current and savings account (CASA) deposits dropped.
However, the bank maintained adequate liquidity to meet short-term funding needs, with strong liquid assets and a healthy liquidity coverage ratio.
Security Bank’s Baa2 ratings sit one notch above its baa3 BCA, reflecting a moderate chance of government support if needed. This view considers the bank’s relatively small share of system deposits at four percent as of end-2024.
Governance-related risks could pose greater pressure over time, partly balanced by expected government support.
Future trend
Moody’s said Security Bank’s ratings may be downgraded further if its capital ratio falls below 12 percent or if rising credit costs from weaker asset quality reduce profitability.
“A significant weakening in Security Bank’s funding and liquidity would also be negative for the BCA and ratings,” it said.
It noted further that a downgrade of the government’s sovereign rating could also lead to a downgrade of the bank’s ratings due to reduced government support capacity.
“An upgrade of Security Bank’s ratings is unlikely as they are already at the same level as the Philippines’ sovereign rating,” it added.
Security Bank’s outlook could be revised to stable if its capital ratio stays above 12 percent and its profitability remains consistently strong, with returns above one percent of tangible assets, Moody’s concluded.
