Moody's to review ratings of nine local banks

MANILA, Philippines - The debt and deposit ratings of nine Philippine banks have been placed on review by Moody’s Investors Service, including the country’s biggest bank, Banco de Oro.

Moody’s announced yesterday that also affected by the review are Allied Banking Corp. (ABC), Bank of the Philippine Islands (BPI), Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), Metropolitan Bank and Trust Co. (MBT), Philippine National Bank (PNB), Rizal Commercial Banking Corp. (RCBC) and United Coconut Planters Bank (UCPB).

Moody’s said its decision to review these nine banks was prompted by what it considered the “increasingly negative impact” of the global economic crisis on the Philippine economy and on the intrinsic strength of its financial institutions.

“Over the next two years, banks are likely to experience higher credit-related write-downs, lower growth and lower revenue, which in turn may pressure the banks’ current capitalization levels,” Moody’s said.

Given the systemic nature of the crisis and the large, but not unlimited, resources of the Philippine government, Moody’s said the local currency ratings of banks would have to be more closely aligned with the government’s local currency debt rating, since it now represents the primary driver of their credit strength.

Moody’s said the review of the debt and deposit ratings would examine if the country’s ability to provide support to its banking system has changed in the midst of the ongoing global economic and credit crisis.

“Moody’s believes that most governments are at least as likely, if not more likely, to support their banking systems as they are to service their own debt — a view that has traditionally led to bank ratings often benefiting from significant uplift due to systemic support,” said Karolyn Seet, Moody’s assistant vice president and analyst of the agency’s Financial Institutions Group.

“However, as the financial crisis continues, the capacity of a country and its central bank to support its banks converges with, and is increasingly constrained by, the government’s own debt capacity,” Seet added.

Seet said Moody’s would be reassessing the level of systemic support for the nine banks to determine whether the systemic support they receive needed to be adjusted.