S&P upgrades Security Bank outlook to positive

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DEBT watcher Standard & Poor’s (S&P) has revised the long-term issuer credit rating outlook on Security Bank Corp. (SBC) to positive from stable following the Philippine bank’s strategic partnership with Japan’s biggest bank.

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“At the same time, we affirmed our ‘BB+’ long-term and ‘B’ short-term issuer credit ratings and ‘axBBB+’ long-term and ‘axA-2’ short-term Asean [Association of Southeast Asian Nations] regional scale ratings on the Philippines-based bank,” S&P said in a statement.

S&P credit analyst Ivan Tan said the outlook revision reflects the bank’s improved capital position after Bank of Tokyo-Mitsubishi UFJ Ltd. (BTMU) acquired a 20 percent stake in the bank.

The deal will increase Security Bank’s capital by P36.9 billion on a pro-forma basis from P52.4 billion as of September 30, 2015. The transaction is expected to close during the first half of 2016, subject to regulatory approval and other conditions.

The ratings agency believes that Security Bank will use the additional capital to pursue more rapid growth, particularly in the retail sector, to complement its strengths in corporate and wholesale banking

It said the bank’s retail growth plans are ambitious. In S&P’s opinion, the retail sector offers higher yields, but also presents greater delinquency risks, which could lead to an increase in the bank’s credit costs.

S&P said rapid use of capital combined with incremental operating costs could gradually reduce the bank’s enhanced capital ratios over the next 18 to 24 months, but stressed that it continues to assess Security Bank’s capital position as adequate.

“The alliance with BTMU will enhance SBC’s products suite, collaboration opportunities, and global banking know-how, and help accelerate the bank’s growth strategy in the Philippines,” said Tan.

“SBC will also leverage BTMU’s relationships to access Japan-related business opportunities. It could improve SBC’s earnings profile and mitigate potentially higher credit costs. Nevertheless, the successful execution of this alliance remains to be seen,” he added.

Security Bank’s ratings could be raised if its risk adjusted capital ratio sustains above 10 percent in the next 18 to 24 months despite the growth plans, according to the debt watcher.

Meanwhile, it could revise the outlook to stable if the bank grows aggressively or its asset quality deteriorates, causing its capital to weaken substantially, particularly if there are missteps as the bank ramps up its retail ambitions in the Philippines.

“We could also revise the outlook to stable if SBC’s deposit mobilization fails to keep pace with loan growth, leading to deterioration in the bank’s funding and liquidity profile,” it said.

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