Bangkok--15 May--Moody's Investors Service Moody's Investors Service says the reliance of Philippines banks on remittances from the country's overseas workforce provides enhancements to earnings stability and credit quality over the near and medium term. "In addition, the combination of rising remittance flows and the renewed interest of banks in building consumer financial services has helped revive domestically retail banking products, which have grown faster than other types of loans," says Richard Lung, a Moody's VP/Senior Analyst. Since the 1970s, the export of labor and the subsequent remittances sent home by overseas Filipino workers (OFWs) have provided a stable source of income and foreign exchange for the Philippines. At the same time, its banks have played a key role -- which has expanded steadily over the past decade -- in these cross-border cash flows. Lung was speaking in conjunction with the release of his report on the Philippines banks and the remittances market, and which looks at trends and possible risks. "However, while providing banking and remittance services to OFWs presents venues for franchise development and growth, the building of long-term stable retail banking operations may prove challenging." says Lung in a reference to the drawbacks. "As this highly bankable population lives abroad, geographic distances and changing immigration patterns and policies play a greater role than in less remittance-dependent economies," says Lung, adding, " In addition, remittances are a service wherein technology could play a transformative role, challenge existing business models and alter the competitive landscape." "Over the next 10 years, new entrants and the adoption of new technology will erode the banks' dominance of this market and the profits they derive directly from the remittance business," Lung says. "Already, two leading wireless phone service providers have launched lower-cost remittance services via text messaging through mobile phones," says Lung. "Moreover, competition has come from new entrants that use technology and other innovations to keep their costs below those of the banks." Another issue is that OFW deployment and hence remittances depend greatly on host country dynamics and policies, the report says. Additionally, if countries allow temporary Filipino workers to become more permanent residents, such a development could impact the flow of remittances as earnings directed to purchasing durables in the Philippines could be increasingly spent in host countries. These changes could make redundant the proprietary operations of the banks in certain remittance corridors, the report says. Those employing the more flexible, but potentially less lucrative, strategy of linking with overseas partners would be less affected. Copies of Lung's report -- "Philippine Banks: Banking on Overseas Filipino Workers" -- can be found at www.moodys.com Hong Kong Richard Lung Vice President - Senior Analyst Financial Institutions Group Moody's Asia Pacific Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (852) 3551-3077 Singapore Karolyn C. Seet Asst Vice President - Analyst Financial Institutions Group Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308