TEXT-Fitch affirms Philippines' Security Bank at 'BB'; outlook stable

(The following statement was released by the rating agency)

Aug 08 - Fitch Ratings has affirmed the Philippines-based Security Bank Corporation's (Security Bank) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB', National Long-Term Rating at 'AA-(phl)' and Viability Rating at 'bb'. The Outlook is Stable. A full rating breakdown is provided below.

Security Bank's ratings reflect its modest franchise in the Philippine banking system (2.9% market share by assets) and loan concentration. They also reflect its strong capital position, satisfactory funding profile, as well as firm underlying profitability and asset quality.

The composition of corporate and middle-market loans remained high at over 90% of total loans. In Fitch's view, Security Bank may be susceptible to a rapid rise in delinquencies and potentially high losses under tough credit conditions. This, together with a weakened loss absorption capacity, may be negative to its risk profile and ratings. The risks could also be heightened if the bank expands aggressively to build market share.

However, downward rating risks appear low in the near term, as reflected in the Stable Outlook. Reported non-performing loans (NPL) at Security Bank are low, partly due to its reasonable underwriting track record. Moreover, the bank has strong buffers from high-quality core capital and loan loss reserves, with core Tier 1 capital adequacy ratio and NPL reserve coverage at 18% and 311%, respectively, at end-2011 (domestic peer-average: 13%, 102%). The bank maintains a fairly liquid balance sheet, despite an increase in the loans/deposit ratio to 82% at end-March 2012 from 74% at end-2011.

Security Bank's profitability may moderate from its high levels in 2011 and Q112 due to tighter margins on competition in corporate lending and lower trading income. On balance, this may be partly offset by efforts to expand loans in the consumer and SME sectors and low-cost deposits, supported by an expanding branch network. Upward rating momentum could result from a stronger domestic franchise, increased loan diversity and earnings stability over the long-term.

The subordinated notes are rated one notch below the bank's 'AA-(phl)' National Long-Term Rating (which is driven by its standalone profile), to reflect the subordination of the notes and the absence of going-concern loss absorption mechanism.

The full list of rating actions is as follows:

Security Bank:

- Long-Term Foreign-Currency and Local-Currency IDRs affirmed at 'BB'; Stable Outlook

- Short-Term Foreign Currency IDR affirmed at 'B'

- National Long-Term Rating affirmed at 'AA-(phl)'; Stable Outlook

- Viability Rating affirmed at 'bb'

- Support Rating affirmed at '4'

- Support Rating Floor affirmed at 'B+'

- Step up callable subordinated lower tier 2 notes affirmed at 'A+(phl)'