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Fundamental View
AS OF 17 Nov 2022Security Bank is rated Baa2 (stable) by Moody’s.
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.
Security Bank enjoys fairly good margins and has been efficient in managing costs, but the cost-income ratio jumped in FY21 on weak revenues.
Business Description
AS OF 17 Nov 2022- Security Bank was established in 1951 and obtained its universal banking license by the Bangko Sentral ng Pilipinas 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 equity stake in Security bank 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 is made up of 23% to the retail segment and 77% to the wholesale segment as of 2Q22.
Risk & Catalysts
AS OF 17 Nov 2022The bank completed working through its risk underwriting control issues around end-2021 and has since resumed growth in the retail book. This is a positive development following two years of ceding market share, but the expected NIM uplift has been slow to come through due to higher deposit costs while holding back some of the rate increases from customers. Growth headwinds are also likely to put pressure on asset quality in the quarters ahead.
The bank is focusing on longer-term profitability and aims to get the ROE in the top 3 among peers by 2025; its plans are to deploy its strong capital base into growing loans and investment securities rather than increasing dividends.
Key Metrics
AS OF 17 Nov 2022| PHP mn | 3Q22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| Net Interest Margin | 4.33% | 4.43% | 4.71% | 3.93% | 3.27% |
| ROA | 1.5% | 1.0% | 1.0% | 1.3% | 1.2% |
| ROE | 9.2% | 5.6% | 6.2% | 8.9% | 8.1% |
| PPP ROA | 2.28% | 2.30% | 4.24% | 2.13% | 1.62% |
| CET1 Ratio | 16.6% | 19.1% | 19.2% | 16.9% | 16.4% |
| Total Equity/Total Assets | 15.56% | 17.88% | 18.89% | 14.92% | 14.28% |
| Gross NPL Ratio | 3.24% | 3.94% | 3.90% | 1.17% | 0.70% |
| Gross Customer Loans/Deposits | 83.0% | 85.7% | 99.6% | 89.8% | 85.2% |
CreditSights View
AS OF 17 Nov 2022Security Bank swiftly grew its retail book in the years leading up to the pandemic, taking the proportion up from 20% to 28% in short order, but insufficient risk controls led to a meaningful hit to asset quality when COVID-19 struck. The bank has resumed growing the retail book this year, which is a positive development following two years of ceding market share. However, the expected NIM uplift has been slow to come through due to higher deposit costs from rising competition, while holding back some of the rate increases from customers. Growth headwinds are also likely to put pressure on asset quality in the quarters ahead. The bank’s strong CET1 ratio and building up of its reserve cover provide comfort. Still, we shift it back to Underperform from Market perform on RV grounds.
Recommendation Reviewed: November 18, 2022
Recommendation Changed: November 18, 2022
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
