The global debt watcher, in a statement, said it assigned a Baa2 rating on the long-term and short-term deposit ratings of the bank with a stable outlook, aligned with its sovereign rating of a notch above the minimum investment grade.
Moodys also assigned the baseline credit assessment (BCA) and Adjusted BCA of Security Bank to baa3. The BCA serves as basis for measuring the creditworthiness of corporate bonds, like subordinated debt and hybrid bonds that the banks sell to raise fresh capital.
Security Bank Corporations Baa2 deposit and issuer ratings are based on its baseline credit assessment (BCA) of baa3; a one-notch rating uplift, due to our assessment that the bank will receive support from the Government of the Philippines (Baa2 stable) in times of need. The outlook on the long-term ratings is stable, in line with the stable outlook on the governments sovereign rating, the debt watcher said.
Moodys said Security Banks baa3 BCA is underpinned by its above-industry average asset quality profile and strong capital buffers, boosted by the recent capital infusion from its new strategic partner, The Bank of Tokyo-Mitsubishi UFJ, Ltd. [T]he BCA also takes in account our expectation that the banks asset quality and capital profile will moderate over time from its ambitious growth plans following the capital infusion.
In addition, the BCA considers the banks modest funding profile, due to its small deposit franchise and branch network in the Philippines, and its higher reliance on market funds when compared to its domestic peers. The banks overall liquidity position remains comfortable, with sufficient liquid resources to meet near-term obligations.
Moodys said as the bank increases lending, we expect the revenue contribution of commercial banking to increase and improve...recurring income streams.
We believe there is a moderate likelihood of government support for Security Banks depositors and senior unsecured creditors. This assessment reflects the banks significance to the Philippine banking system, based on its 3% share of total system deposits and sizable share of the domestic corporate and capital markets. As such, our ratings include a one-notch uplift for government support, Moodys said in its statement.
The factors that could result in an upgrade of the banks BCA include proven ability to maintain low levels of nonperforming loans and foreclosed assets, and to keep credit costs low; 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.
On the other hand, the banks BCA and consequently its ratings could be lowered, if aggressive organic expansion or acquisitions in unfamiliar markets, resulting in a significant increase in asset risks; its operating environment weakens significantly or underwriting practices become lax, resulting in a significant increase in nonperforming assets and foreclosed assets; and there is a material decline in its capital buffers and/or core profitability.
A situation in which a reliance on market funds creates significant refinancing risks or liquidity issues; and/or the macro profile for the Philippines is lowered and its rating input used to determine a banks BCA, and is designed to capture systemwide factors that are predictive of the propensity of banks to fail, Moodys added.
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