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Sustaining a track
record for profitability
amidst the global
uncertainties that
weighed on financial
markets in 2007 is a
daunting challenge. As
markets around the world contended
with record high oil and commodity
prices, a succession of well-established
international banking giants disclosed,
during the second half of the year,
billions of losses related to sub prime
mortgages, collateralized debt
obligations and eventually spilling
over to ancillary businesses like the
monoline bond insurers.
On the other hand, the Philippine
economy charted a path of resiliency
registering a GDP growth of 7.3%
exceeding both government and market
expectations by a full percentage point.
This result, the strongest since its peak
in 1976, placed the Philippines among
the top five best performing economies
in Asia. Alongside this performance,
OFW remittances continued to be on an
uptrend notwithstanding the sustained
appreciation of the peso versus the dollar
from the year-end 2006 exchange rate
of P49.03 to the 2007 year-end level
of P41.28. Meanwhile, peso interest
rates furthered their downward trend
which, though a positive stimulus for
credit demand, resulted in further
compression in interest margins.
Against this backdrop, competition
in the Philippine banking industry
intensified as consolidation continued
albeit at a slower pace and major players
focused their attention to capitalizing
on a measured expansion in the credit
markets and renewed efforts on higher
yielding opportunities in the retail and
middle market lending space.
In the quest for sustained growth
in profitability, we concentrated on
improved execution of our key strategies:
- Focus on customers and markets
- Innovation and speed to market
- Results-oriented quality and productivity
- Stakeholder value enhancement
- Teamwork
Proudly, the financial highlights for
2007 reveal yet another landmark year for
the Bank as gleaned in these milestones:
- Revenues improved by 20% over the previous year to P7.9 billion.
- Net Income of P2.7 billion for the year, 42% higher than 2006
- Return on Equity increased to a record 22% versus the prior year’s 17%
- Total loans grew by 55% to P52.0 billion from last year’s P33.6 billion
- Total deposits grew by 7% in 2007 to P94.7 billion from 2006’s P88.8 billion.
- Asset quality indices remained among the industry’s best as NPL ratios ended at 2.6% in 2007 from last year’s 4.2%
- Security Bank’s share price closed at P78.50 for 2007, a 20% increase from 2006’s closing price of P65.50
Underpinning the excellent financial
results were a series of programmed
and well-executed activities specifically
focusing on customer relationships and
targeted markets.
One of the corner stones of
2007’s success was the Corporate
Relationship Group’s (CRG) pragmatic
approach in retaining quality loans that
corresponded to our asset yield criteria
in the light of the historically low interest
rate environment. This focus aided in
the expansion of the balance sheet
but more importantly resulted in an
improved allocation of assets to loans,
as Security Bank’s loan portfolio grew
by P18.4 billion or 55% to end the year
at P52.0 billion. The increased credit
demand arose from CRG’s support for
client requirements in infrastructure,
utilities and real estate development
opportunities. In addition, 11% of the
incremental growth in loans was in the
form of purchases of contracts to sell and
is poised to provide a pool of potential
mortgage clients. The increased business
likewise improved the servicing of commercial or customer-related foreign
currency flows bolstering foreign
exchange income.
CRG’s Cash Management business
also leveraged on our relationships with
major corporate accounts as innovative
products such as Auto Credit Payment
Manager and SSSNet were launched in
2007. AutoCredit Payments Manager is
an automated alternative settlement
option which allows companies to initiate
debits to their respective disbursement
accounts in order to directly pay their
creditors, strengthening client-supplier
interactions and easing access in
reconciling cash positions. We have also
launched SSSNet, an electronic payment
and data interchange facility offered
through the Bancnet platform, which
allows employers to remit premium
contributions and transmit supporting
documents online to the Social Security
System. These products, the latest among
a suite of cash management services we
have introduced, forged our position as
one of the leading domestic providers of
these services in the country.
This year also marked milestones
for our investment banking arm, SB
Capital which achieved a 51% growth
in volume of deals booked over the
previous year. Working both on self originated
leads and in collaborations
with the Corporate Relationship Group,
investment banking efforts focused
on creating more opportunities for our
clients by providing competitive and
value-adding product offering services,
teaming up and forming strong alliances
with peers to secure deal mandates, and
tapping internal distribution channels.
Meanwhile, SB Equities, the subsidiary of
SB Capital, benefited from the increased
interest in the Philippine equity markets
particularly at the first half of the year,
resulting in a 116% increase in revenues
and a 271% increase in net contribution
over the previous year. Its performance
has resulted in SB Equities being ranked
second in terms of volume turnover
among bank-owned brokerage houses
and 9th among all brokerages in the
country.
Another facet of our success is the
continued growth of our Consumer
Banking segment. In sync with the
bank’s objectives of growing the retail
deposit and investor base, several deposit
products and programs were either
launched or sustained in 2007 such
as S-Class, Paymaster, Checksure, and
MediBanker. A pioneering innovation
is Checksure, a unique facility that
“We recognize that a key driver for Security Bank’s
success has been the positive contribution of its
different stakeholders that serves as a potent foundation
for future success amidst heightened competition.”
links checking accounts to a Security
Bank Mastercard. These out-of-the-box
products contributed to the growth in
deposits as Total deposits increased by
7% to P94.7 billion from the prior year’s
P88.8 billion. We likewise continued our
efforts in building the bank’s consumer
loan portfolio with the expansion of our
auto loan offerings in the third quarter of
the year. Similarly, cards-in-force for our
credit card business grew by 19% and
contributed to a 9% growth in credit card
receivables.
With the continued downtrend in
domestic and US interest rates, growth in
the proprietary driven treasury related trading
gains tempered. However,
efforts relating to building a recurring
revenue base pioneered two years ago
have proven to be a worthy initiative
as this focus yielded positive results
for the treasury business. Volumes of
products marketed by our fixed income
distribution business to both institutional
and retail accounts grew 104% over
the previous year and accounted for an
estimated 18% of fixed income trading
gains. Our efforts in this area received
recognition for the third successive year
by the Philippine Dealing Exchange
Corporation (PDEX) with Security Bank
being cited as the “Best Securities
Trading Bank” in the country while
international recognition was conferred
by The Asset publication on Security
Bank as “The Best Bank in Philippine
Peso Government Bonds”. Furthermore,
leveraging on our derivatives license, we
increased efforts to broaden our client
base for peso derivative products such as
interest rate swaps and dollar-peso nondeliverable
forwards boosting volumes
dealt by 213% over the prior year and
contributing to as much as 35% of the
foreign exchange gains recognized for
the year.
Assessing the activities that were
undertaken last year, we are quite pleased
that the incisive efforts we directed
towards building a sustainable base from
which to continue to grow the bank’s
business is yielding favorable results. We
judiciously invested and made resources
available in a timely fashion to capitalize
on the opportunities that arose through
the year, particularly with the upswing
in credit demand that took place in the
latter half of 2007. Notwithstanding
concerns over continued turmoil and
recessionary fears in the developed
markets, we are optimistic that the
Philippine economy and its banking
industry, in particular, will continue on a
growth trajectory.
We recognize that a key driver for
Security Bank’s success has been the
positive contribution of its different
stakeholders that serves as a potent
foundation for future success amidst
heightened competition. As we raise
the bar of achievement even higher, the
unwavering trust and sound governance
provided by our Board of Directors will
remain a crucial ingredient in propelling
our Senior Management to effectively
execute the strategies agreed upon. This,
in turn, is greatly intertwined with the
commitment and fortitude harnessed by
our officers and staff as they set about
achieving their daily tasks and activities.
Finally and certainly not the least, we are grateful for the continued
patronage of our customers and business partners. We remain resolutely
focused on working to improve the level of service we provide and
tailoring our products and services to better meet your evolving needs in
the years ahead.
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