Security Bank sees steady loan growth

SECURITY BANK Corp. expects steady but muted growth in its loan book in 2025 as it has seen faster-than-expected expansion so far this year.

“We grew way faster this year than we had expected. It’s not that we’re not optimistic — we are — but the reality is you’re having to grow a much larger book because our book is bigger this year. Even if we grow more in nominal terms, which we expect, we also have to be mindful of managing the amount of risk we take,” Security Bank Chief Financial Officer Eduardo M. Olbes told reporters on Friday.

Security Bank’s loans grew by 15.68% to P622.75 billion at end-September from P538.33 billion at end-2023, its financial statement showed.

Mr. Olbes said the bank’s corporate loan book, which currently makes up about 70% of Security Bank’s total portfolio, will grow in line with the country’s economic growth.

“So, if GDP (gross domestic) growth is on the slower side, then the loan demand on that side will also be slower because these are the companies who are, in a sense, driving that GDP growth. Here, what we’ve seen is it’s very, very competitive because the loan demand is slower. Many banks are competing, and so the pricing on those loans is going down. What we’re hoping to see is hopefully as the economy grows faster, we hope to see a pickup in terms of loan demand in that sector,” he said.

The government is targeting 6-7% GDP growth this year and 6.5-7.5% expansion for 2025.

In the first nine months, Philippine GDP growth averaged 5.8%. To meet the lower end of this year’s 6-7% target, the economy would need to grow by at least 6.5% in the fourth quarter.

Mr. Olbes added that the bank does not expect its performance for this year to be affected by the slower-than-expected GDP growth in the third quarter as the Philippines continues to be one of the fastest-growing economies in Southeast Asia.

Meanwhile, Security Bank’s loans to the retail and micro, small, and medium enterprise (MSME) sector have grown faster than expected as consumer spending has returned to pre-pandemic levels, he said.

“Retail loans are mainly three lines of business: home loans, auto loans, and credit card. Across all [lines], it’s been growing very fast, meaning the demand has been quite strong… In the case of credit cards, we’ve also seen spending on the cards recover above where it was pre-pandemic, so that’s good news. That means that consumers are basically spending.”

He added that the bank expects steady growth in its MSME loans this quarter. Lending to the segment expanded by over 60% as of the third quarter.

“The small-, medium-sized entrepreneurs are the folks. Eventually, some of them will grow their business into big businesses and you want to see activity there because they’re also big employers. So, those are the two areas where the growth is quite rapid, and we’ve seen that strength throughout the first three quarters. We expect that momentum to continue through the fourth quarter,” Mr. Olbes said.

The lender could also see consumer credit cornering a bigger share of their loan portfolio amid faster growth in the segment, he added.

“Not by a lot, but by a little. It’s a function of the growth rates being much faster. Let’s say on the consumer side, we’re growing over 30% year over year. On the corporate side, that’s growing mid-teens, around 14 to 15%. So, if something’s growing two times faster, mathematically, it accounts for a bigger piece. That is not because that’s necessarily the way we want it, meaning we’re not intentionally biased in favor of retail versus wholesale,” Mr. Olbes said.

“We want to serve the demand, and therefore, the demand has been quite strong on consumer and MSMEs, and that’s why we’ve been growing faster. From our standpoint, we don’t have any intent to necessarily change the mix. It’s just a function of if the demand is there and we’re okay with the risk reward, we will do it.”

The bank’s new mobile app is also expected to boost its consumer business next year, he said.

Security Bank also expects the Bangko Sentral ng Pilipinas’ (BSP) easing cycle to spur loan demand next year, the official said. The bank sees the BSP incrementally cutting rates by 100 basis points in 2025, but this will also depend on the peso and developments in the US.

“What we’ve seen though now is the interest rates have only begun to go down; people believe that interest rates will continue to go down next year,” Mr. Olbes said.

The upcoming rate cuts will also result in the downward repricing of about 50% of the bank’s total loan book, but Mr. Olbes said Security Bank will remain competitive in terms of pricing.

“Where the rates will move on the loan is on the short-term loan side. So, these are the working capital loans that you give to the large companies. That one will also instantaneously adjust,” he said.

Meanwhile, the bank’s profitability could continue to improve as it reaches the tail-end of heavy technological investments while its revenues steadily grow.

“On the cost-to-income ratio, our expenses are also growing faster than industry simply because we are making a lot of investments in terms of technology and people… So for next year, to be able to manifest better profitability, the revenues have to grow as fast as they’re doing now or better. We expect to improve in terms of cost-to-income ratios, which means more of the revenues will hit the bottom line and we also expect an improvement in terms of credit cost. So, all three factors will need to translate, and you’ll see that in better return on equity,” Mr. Olbes said. 

The bank aims to reach double-digit return on equity next year.

However, Mr. Olbes said the bank’s expenses could rise as it plans to further expand its branch network outside the National Capital Region (NCR).

“We hope to end this year somewhere around the 340 area. By next year, we imagine that we will be close to probably around 400 branches… We’re pushing a lot into areas outside of NCR,” he said, adding that the bank is underrepresented in provincial areas despite the increase of commercial hubs.

Security Bank’s net income rose by 13.58% year on year to P3.01 billion in the third quarter amid higher revenues.

This brought its nine-month net profit to P8.45 billion, up by 11.62% from a year ago.

HOME CREDIT STAKE
Meanwhile, Security Bank on Friday announced that it will acquire MUFG Bank Ltd.’s 25% stake in HC Consumer Finance Philippines, Inc. (HCPH) or Home Credit Philippines as part of its consumer growth strategy.

The bank will purchase the stake for P11 billion, the listed bank said in a disclosure to the stock exchange.

Krungsri (Bank of Ayudhya PCL and its business units) will continue to hold a 75% ownership stake in HCPH and remain the majority shareholder.

This represents the second partnership between Security Bank and Krungsri, with the first being the joint venture for SB Finance, Inc.

Security Bank aims to complete the transaction within the first quarter of 2025, subject to regulatory approvals. — Aaron Michael C. Sy