CREATE law, weak lending sap Security Bank profits in 2021

MANILA, Philippines (Update 2, March 7, 2022) — Security Bank Corp posted lower earnings in 2021 due to a “one-time” charge for deferred tax assets while its core lending business had yet to perform up to pre-COVID standards.

In a disclosure to the Philippine Stock Exchange on Friday, Security Bank said it netted P6.9 billion last year, down 6.79% on an annual basis.

Explaining the earnings slump, the company said it had to pay P1.2 billion for deferred tax assets following the passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, which cut corporate taxes in hopes that companies' tax savings would help fund business recovery from the pandemic. Excluding this charge, Security Bank said its profits actually grew 141% year-on-year to P10.3 billion.

The company is yet to release its full financial report. But figures presented in the bank’s regulatory filing showed some weaknesses in its lending business.

Security Bank’s gross loans in 2021 stood at P467 billion, up by just 1% versus the preceding year despite cheap borrowing costs as a result of the Bangko Sentral ng Pilipinas’ ultra-loose monetary policy to entice borrowers. Broken down, retail loans were down 9% year-on-year while wholesale loans rose 5% in 2021.

With the underwhelming credit growth, the BSP’s record-low policy rate instead appeared to have weighed on the bank’s net interest income, which sagged 10% year-on-year to P27.5 billion in 2021.

At the same time, net interest margin — or the difference between what banks pay for deposits and earn on loans and investments — was down by 27 basis points year-on-year to 4.43% despite the low interest rates.

“We are optimistic about economic activity in 2022, despite the Omicron impact in January,” Sanjiv Vohra, company president and CEO, said.

Beyond its lending business, Security Bank said total non-interest income plummeted 53% year-on-year to P9.4 billion in 2021 due to base effects from “extraordinary securities trading gains” in 2020. Service charges, fees and commissions increased 25% on-year to P4.5 billion, figures showed.

On the expenditure side, operating expense was up by 8% annually last year “driven by investments in technology and manpower to improve customer experience”.

Security Bank also reduced its provisions for credit losses to P5.3 billion in 2021, from P26.4 billion in 2020, as the share of bad debts to the bank’s total loan portfolio settled at 3.94%.

Shares in Security Bank ended weekly trading down 0.7%  to P113 apiece.

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Editor's note: Changed the term "payment" in the first and third paragraphs to "charge" as clarified by Security Bank.