The investment grade awarded by New York-based Moody’s Investors Service on the quality of credit
issued by Security Bank should allow the lender to secure funding at significantly reduced costs down the line, its president and CEO told the BusinessMirror on Wednesday.
Alfredo L. Salcedo Jr, second most-senior executive at Security Bank, already looks forward to reducing his funding expenses after Moody’s assigned the lender an investment grade credit rating of Baa2 with a stable outlook.
Salcedo told the BusinessMirror via text message the bank was pleasantly surprised by the credit assessment Moody’s gave the lender.
“We did not build into our growth forecasts this investment grade rating. But with this rating, we hope to be able to lower our funding cost,” Salcedo said.
Globally, lenders value credit ratings given the major impact it has on interest rates, which loans will need to be repaid. A favorable credit rating could translate to lower rates for borrowing and favorable terms for bond issues, debt issuance and other possible fund raising for the lender.
According to Moody’s, Security Bank’s baa3 baseline credit assessment (BCA) is underpinned by above-industry average asset quality profile and strong capital buffers, which was boosted by the recent capital infusion from its strategic partner, The Bank of Tokyo-Mitsubishi UFJ Ltd. (BTMU).
“The bank’s asset quality profile compares favorably with its peer banks in the Philippines,” Moody’s
then reported.
Moody’s added the lender’s profitability metrics are stronger than its domestic peers. Its return on assets stood at 1.4 percent at end-2015, higher than the 1.0 percent to 1.2 percent registered by other Moody’s-rated Philippine banks.
As of end-June 2016, Security Bank reported nonperforming loans (NPLs) that accounted for 0.8 percent of gross loans, a result better than the average for the banking system of 2.2 percent. Its coverage for NPLs was also higher than peer banks, at 229 percent in the same period.
“The bank’s reported common equity Tier-1 ratio stood at 18.6 percent at end-June 2016, an improvement from the 12.2 percent seen at end-2015, and largely boosted by the capital infusion from BTMU, the bank’s new strategic shareholder, as well as retained earnings,” Moody’s said.
The rating levels Security Bank on the same parallel with country’s biggest banks, namely, BDO Unibank Inc., Metropolitan Bank and Trust Co. and the Bank of the Philippine Islands.
Moody’s said its outlook on the long-term ratings is stable, in line with the stable outlook on the government’s sovereign rating as the Bangko Sentral ng Pilipinas and the Philippine government are also rated Baa2.
“Security Bank’s deposit rating of Baa2 is at the same rating level as the Philippines’s sovereign rating. It is therefore unlikely that the bank’s rating will be higher than the sovereign’s rating, because we view the correlation of risk between the bank and the sovereign as high. If the sovereign’s rating is upgraded, Security Bank’s ratings could be upgraded, if the bank’s BCA is also upgraded,” the report read.
Moody’s noted the following factors could result in an upgrade of the bank’s BCA: its proven ability to maintain low levels of nonperforming assets and foreclosed assets, and to keep credit costs low; the evidence that the bank can increase the contribution of its core commercial banking businesses to its overall profitability; and a higher level of loss-absorption capacity.