Security Bank targets double-digit return on equity by end-2027
Key Takeaways
- •Security Bank expects corporate lending to expand faster than consumer loans, shifting its portfolio mix to 70% corporate by 2029.
- •Project financing, especially for renewable energy, is expected to support the bank’s move toward a more corporate-focused loan book.
- •The bank forecasts a 55%-58% cost-to-income ratio and stable asset quality by year-end.
- •Security Bank plans to complete its legacy-platform migration this year, launch a corporate banking app subject to approval and reach 400 branches by end-2026.
- •The bank’s shares declined 0.31% to P64, while second-quarter net income rose to P3.38 billion year on year.
Security Bank Corp. aims to improve its profitability metrics over the next three years, targeting a return on equity (RoE) of 12% by 2029 from 7.85% as of end-June, amid an optimistic outlook despite elevated market volatility.
“Personally, I think that for me, three years is enough time for me to turn this business around to a double-digit return. And I think investors are waiting for us to turn that corner, to return a double-digit return. The last time we actually hit 10% was probably in 2017. And today, over the last three quarters, the team is confident and built up a very realistic practical plan to get ourselves into a double-digit [RoE] end of 2027,” Security Bank President and Chief Executive Officer Victor Lee Meng Teck said at a media roundtable on Thursday.
He said the bank’s growth will be driven by its small business, project financing and corporate lending segments.
Security Bank Chief Financial Officer John David “JD” G. Yap said the bank is also targeting a return on assets of 1.7% by 2029, up from 1.02% currently. It plans to reduce credit costs to around 140 basis points (bps) over the next three years, while its common equity Tier 1 ratio is targeted to reach 12.5%-13% by 2029. The bank is pursuing these profitability targets alongside lower credit costs, a higher capital ratio and a more corporate-focused loan mix.
The bank expects to end the year with a cost-to-income ratio of 55% to 58%. It sees loans growing by 3%-5% this year based on its current pipeline, with asset quality expected to remain steady.
Mr. Yap said corporate loans are expected to grow faster than consumer loans, resulting in a loan mix of 70% corporate and 30% consumer by 2029, compared with the current ratio of 67% to 33%.
Mr. Lee said the shift will be driven mainly by project financing, particularly in the renewable energy sector.
Credit costs are expected to end higher this year because of the Middle East war, but Mr. Lee said they would improve beginning next year.
“So, we ended last year at 180 bps. We are forecasting about 210-220 bps this year. But that will improve moving into next year. The Middle East war has probably created a pickup of about 20-30 basis points on the cost of credit,” he said.
Mr. Yap said the bank’s assumptions remain conservative because of current macroeconomic conditions.
“We assume similar or not-so-great macroeconomic environment to ensure that we have enough leeway to deliver this plan. If the economy moves to the better, then of course there will be upside. But for now, we keep it in the conservative level.”
Mr. Lee added that growth will also be supported by the transaction banking business and improved digital platforms. The bank launched its retail banking app last year and plans to launch a corporate banking app soon, subject to central bank approval.
The bank aims to complete the migration of clients from its old platforms by the end of this year. It also plans to end 2026 with 400 branches and is targeting inclusion in the Philippine Stock Exchange index by 2029.
Security Bank booked net income of P3.38 billion in the second quarter, up from P3.04 billion a year earlier. This brought its first-half profit to P6.08 billion, compared with P5.86 billion previously.
Its shares fell by 20 centavos, or 0.31%, to close at P64 apiece on Thursday. — A.M.C. Sy
