S&P Global Ratings (S&P) recently upgraded its credit rating on Security Bank to investment grade rating of BBB- (Stable outlook) from BB+ (Positive outlook). In its May 2018 report released in Singapore, S&P stated that its rating action on Security Bank followed its review of the Philippine banking sector which concluded that the credit risk facing Philippine banks has reduced with the establishment of credit bureaus and banks’ improving underwriting practices in the consumer loans segment.

S&P revised its Banking Industry Country Risk Assessment on the Philippines to group ‘6’ from group ‘7’ due to the sector’s improved credit fundamentals. S&P cited the positive role of the Credit Information Corp., a centralized credit registry, which has been collecting data on the credit history of borrowers. Participating financial institutions have access to this database and accredited credit bureaus will be able to dispense credit scores and reports. S&P believes that this will strengthen the underwriting standards in consumer lending and, over the long-term, better transparency should lower consumer non-performing loans closer to the overall banking system NPLs.

As a result, S&P upgraded its rating on Security Bank to BBB- (Stable outlook) because it expects the reduced credit risk in the Philippines to strengthen Security Bank’s capital position and provide a solid buffer against potential losses. The Stable outlook on Security Bank reflects S&P’s view that Security Bank will maintain its strong capital buffers and good asset quality over the next two years. S&P expects Security Bank’s risk-adjusted capital ratio to remain strong at 11%-12% over the next two years. S&P’s formula for risk-adjusted capital ratio is more stringent than the Basel III formula used in the Philippines.

S&P’s review of the Philippine banking sector and subsequent rating upgrade of Security Bank followed S&P’s earlier action last April of raising the outlook for the Philippines’ sovereign credit rating to Positive from Stable and affirming the sovereign credit rating at BBB. This move raised the possibility of a rating upgrade for the country on the back of solid economic growth, healthy external position, and improvements in policy-making.