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May 27, 2024

Moody’s holds steady ratings for Security Bank, China Bank amid strong capital, profit prospects

Credit rating agency Moody’s has maintained stable outlooks for Security Bank Corporation, led by bilyonaryo Frederick Dy, and Sy-led China Bank Corporation, reinforcing their Baa2/P-2 long-term and short-term local and foreign currency deposit ratings.

Additionally, Moody’s affirmed China Bank’s and Security Bank’s Baa2 issuer ratings, along with their Baa2(cr)/P-2(cr) counterparty risk ratings.

The reaffirmation of China Bank’s and Security Bank’s ratings reflects their robust capital positions, which effectively mitigate lingering asset risks, alongside their modest funding and adequate liquidity.

Both banks boast high capitalization, with tangible common equity to risk-weighted assets (TCE/RWA) standing at 14 percent for China Bank and 17 percent for Security Bank as of end-2023.

While China Bank maintained a strong profitability with a return on assets (ROA) of 1.6 percent in 2023, supported by stable net interest margins and lower provisioning costs, Security Bank experienced a slight dip in ROA to 1.1 percent due to higher operating and provisioning costs.

However, Moody’s anticipates stable profitability for both banks in 2024, driven by wider NIMs from higher yielding retail and SME loans and reduced cost of funds.

Despite expectations of nonperforming loan (NPL) ratios improving but remaining above pre-pandemic levels, at around 2 percent for China Bank and 3 percent for Security Bank, Moody’s underscores the risks associated with the banks’ expansion into riskier retail and SME segments. Nonetheless, tight underwriting standards and adequate capital buffers mitigate these risks.

While both banks exhibit modest deposit franchises with higher reliance on market funds compared to domestic peers, Moody’s expects their liquidity to remain adequate amid anticipated loan growth in 2024.

China Bank’s and Security Bank’s ratings, one notch above their Baseline Credit Assessments (BCAs), reflect a moderate likelihood of government support if necessary.

However, upgrades are unlikely as their ratings already align with the Philippines sovereign rating. Downgrades could occur in the event of material deterioration in solvency and liquidity metrics or a sovereign rating downgrade.