Security Bank sees rebound in 2019

Lender Security Bank expects a rebound to profitability this year on the back of improved loan margins and a sustained double-digit expansion in core lending activities.

Net profit this year is likely to grow over last year’s P8.6 billion, reversing the 16-percent drop in bottom line last year caused by slower trading gains and an increase in tax provision.

Security Bank president Alfonso Salcedo Jr. yesterday said the bank would likely grow its loan book by 13-15 percent this year from 12 percent last year.

At the same time, Salcedo sees a 10- to 15-basis point potential improvement in Security Bank’s net interest margin this year, from 3.4 percent in the fourth quarter of 2018.

Salcedo expects a NIM improvement this year for the local banking industry in general, coming from an “irrational” period last year when a wave of stock right offerings that injected fresh capital into many banks prompted the lenders to lend at overly generous rates just to be able to deploy capital.

While the country has seen strong credit growth in the last seven years, with average increase at high-teens or low 20s, Salcedo assuaged concerns that the country might be nearing the end of the boom in the credit cycle.

“We don’t see any systemic red flags and that’s an industry-wide comment,” he said.

Salcedo said the bankruptcy of Korean-shipbuilder Hanjin, for instance, was just a one-off event and this was caused by external rather than domestic factors.

In terms of profitability metrics, Salcedo said Security Bank might be able to return to a double-digit level of return on equity (ROE) in the next three years.

Its goal is to sustain the highest ROE among its peers, regaining its old bragging right which it lost in 2015 when fresh capital injected from the buy-in deal with MUFG tempered its ROE. In 2018, its ROE stood at 8.1 percent.

Security Bank considers 2018 its new base year because it no longer expects financial markets or the Treasury business to generate as much earnings as it did in previous years, Salcedo said.  The goal is instead to grow its core lending activities.

Last year, the bank’s wholesale or top-tier corporate loan book grew at about 7 percent, slower than the over 20 percent in the last three years, as it opted to stay out of outrageously priced loan deals.

He said the bank would like growth in wholesale lending to be closer to 13 percent yearly.

Security Bank intends to have a more balanced loan portfolio mix.  Last year, retail lending accounted for 20 percent of the business, up from 16 percent in the previous year.  It also seeks to grow its small business lending.

The bank conducted on Thursday its second economic forum for 2019 at the Edsa Shangri-La Manila in Mandaluyong City, highlighting the “Build Build Build” program of the government and its impact on various businesses nationwide.