Moody’s affirms Security Bank investment grade credit rating

MANILA, Philippines — Moody’s Investors Corp. has affirmed the investment grade credit rating of Security Bank Corp. on the back of the bank’s strong capital that mitigates elevated asset risks amid the pandemic.

The debt watcher has affirmed the Baa2 long-term local and foreign currency bank deposit and senior unsecured ratings of Security Bank, while the outlook was maintained at stable.

Baa2 is a notch above minimum investment grade rating and is at par with the Philippines’ credit rating.

“The affirmation of Security Bank’s ratings reflects the bank’s strong and above-average capital position that offsets its elevated asset risks, average profitability, modest funding structure, reflecting its moderate deposit franchise as a medium-size bank in Philippines, and adequate liquidity,” Moody’s said.

It said Security Bank’s tangible common equity to adjusted risk-weighted assets ratio may stay above 17 percent in the next 12 to 18 months as the bank’s internal capital generation will keep pace with moderate loan growth.

The ratio increased significantly to 20 percent in 2020 from 15.3 percent in 2019 due to a contraction in loans and significant decline in the bank’s holdings of investment securities last year.

Moody’s said the listed bank’s non-performing loan (NPL) ratio is likely to remain elevated at above pre-pandemic levels in the next 12 to 18 months.

“Lingering stress from the prolonged pandemic disruption in the country has resulted in its NPL ratio increasing significantly to 4.15 percent as of end-September 2021 from 1.17 percent as of the end of 2019,” it said.

The debt watcher believes Security Bank’s annualized return on assets declined to 0.92 percent in the first nine months from 1.14 percent in 2020 due to the absence of significant trading gains and reduced net interest margins as loans were repriced lower amid the low interest rate environment last year.

Meanwhile, Moody’s downgraded the deposit and senior unsecured ratings of Rizal Commercial Banking Corp. (RCBC) to Baa3 – minimum investment grade - from Baa2 as well as its Baseline Credit Assessment to ba1 from baa3.

“The downgrade is driven by weak asset quality and deterioration in capital,” Moody’s said in a separate report.

RCBC’s outlook, however, was revised to stable from negative as higher core profitability is seen mitigating risks to asset quality.

The debt watcher pointed out RCBC’s asset quality remains weak as provision coverage declined to 64 percent from 74 percent despite the improvement in NPL ratio to 5.2 percent in end- September from 5.4 percent in 2020.

It said RCBC’s loan growth has been significantly higher than system, with year-on-year loan growth of 13 percent at end-September compared to three percent for the system. “This poses downside risks to asset quality,” Moody’s warned.

The strong loan growth has also impacted capital, with the common equity tier 1 (CET1) as of end- September declining to 12.1 percent from 12.6 percent as of the end 2020. It warned the bank’s capital may further fall as RCBC is seen booking strong loan growth.