Security Bank Lower Tier 2 Notes offer higher yields

A leading market analyst said that the recent Lower Tier 2 (LT2) Notes of the Security Banking Corp. (Security Bank) is a good yield pick up for investors.

Security Bank issued last month a P3-billion LT2 Note with an offered yield of 8.625 percent.

They said that the final interest for the lower tier 2 notes is higher than its original tentative rate of 8.5 percent. 

Edward Bancod of ATR Kim Eng Securities said that the set price of notes provided more leverage to compete with those of a similar nature and will eventually work in the investors’ favor.

“It is actually not bad for Security Bank to give these kind of rates, considering that it has issued these notes given the perception of risks against banks with a wider capital base,” Bancod added.

A total of eight lower tier 2 offerings have been made since the start of 2008 with the most of the issue prices at a spread from 20 to 50 basis points (bps) over the applicable five-year peso-fixed rate treasury note benchmark. The resulting coupon was pegged between seven percent and 8.6325 percent for these issues.

Bancod noted that the recent spate of offerings by banks of lower tier 2 notes have bucked the global trend that is currently prevailing and underscores the strength pf the local banking sector.

The LT2 notes were given an A-plus national rating by international investment watchdog Fitch Ratings. Security Bank has continued to perform exceptionally with an above industry return on equity of 19.3 percent.

Selling agents for P3-billion LT2 notes are Deutsche Bank AG and ING Bank NV.

Security Bank president and chief executive officer Alberto S. Villarosa in an earlier interview said that the amount raised was to refinance its earlier issue maturing lend of 2008.

The bank informed the Philippine Stock Exchange (PSE) last November that it was calling its lower tier 2 subordinated notes issued in 2004 and due in 2014. These notes are the P2.7 billion issued in Jan. 29, 2004 with maturity date of Jan. 29, 2014, and the P300 million issued in Jan. 30, 2004 with maturity date of Jan. 30, 2014.

Security Bank reported a solid return on equity (ROE) of 19.3 percent and a net income of P1.72 billion.

“The bank’s efforts in building core revenues and other income streams have helped in softening the adverse impact on securities markets brought about the global financial turmoil that began in the US and Europe,” the bank chief executive explained.

Balance sheet after nine months into 2008 stood at P144.1 billion, 12 percent higher than the P128.6 billion recorded at end 2007. 

“The growth in the balance sheet along with the increased allocation towards lending, which now accounts for 43 percent of the bank’s total assets, was accomplished while further improving asset quality as its non-performing loans (NPL) ratio is pegged at 1.3 percent from the 2007 year-end level of 2.6 percent,” the bank president added.

NPL cover likewise grew even stronger at 266 percent versus the 181 percent reflected at the end of last year. Capital adequacy ratio (CAR) remains strong at 13.7 percent.   — TPT