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The capital strength of the publicly traded Security Bank Corp. could weaken over the next one to two years due to record credit costs, S&P Global Ratings warned.
In a statement Tuesday, the debt watcher said that the local lender’s borrowing costs during the first nine months of the year increased multiply to 21 billion pesos from $ 1.75 billion during the same period in 2019.
As a result, the bank’s annualized borrowing costs accelerated to a “considerable” 600 basis points (bps) for this year, from 91 bps in 2019, he added.
“This level of credit costs is significantly higher than that of its industry peers, with annualized industry credit costs of 180 basis points for the first nine months,” S&P further said.
It also said that the gross bad debt ratio (NPL) reported by Security Bank rose to 4.03 percent in the third quarter of 2020 from 1.44 percent year-on-year.
The credit evaluator added that it downgraded Security Bank’s independent credit profile to “bbb-” from “bbb” in June this year, reflecting the weakening of the bank’s asset quality and high credit costs. amid the significant economic consequences of the pandemic.
“Our baseline scenario remains that the bank’s risk-adjusted capital ratio would remain above 10 percent for the next two years. However, high credit costs will squeeze the capital position, as well as the rating cushion, ”he explained.
“In our view, this year’s resilient Net Interest Margin (NIM) and substantial business earnings can help partially support the bank’s bottom line performance as well as its capital
base, ”S&P added.
During the third quarter of the year, S&P said Security Bank’s NIM expanded to 4.89 percent from 4.71 percent, while the industry average NIM was 3.84 percent. Business profits were considerable P9.2 billion for the year to date, compared to P1.4 billion during the same period last year.
“In our opinion, it will be difficult to get more windfall from the portfolio, given the significant contraction of the portfolio in amortized costs,” he added.
Shares of Security Bank rose P2.40 or 2.31 percent to close at P106.30 each on Tuesday.
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