Bangkok--20 May--Moody's
Moody's Investors Service has placed the debt and deposit ratings of nine Philippine banks on review for possible downgrade.
The banks affected are Allied Banking Corporation (ABC), Banco de Oro Unibank (BDO), Bank of the Philippine Islands (BPI), Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), Metropolitan Bank and Trust Company (MBT), Philippine National Bank (PNB), Rizal Commercial Banking Corporation (RCBC) and United Coconut Planters Bank (UCPB).
"The review of the debt and deposit ratings will look at the extent to which the Philippine's ability to provide support to its banking system, if needed, has changed in the midst of the ongoing global economic and credit crisis," says Karolyn Seet, a Moody's Assistant Vice President and Analyst.
"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," says Seet.
"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," says Seet.
As such, Moody's will be reassessing the level of systemic support for the banks listed above to determine whether the systemic support they receive needs to be more closely aligned to the government's B1 (positive) local currency bond rating. Philippine banks currently receive between two to six notches of systemic support.
Moody's will review the specific circumstances of the Philippines to determine the appropriate systemic support for Philippine bank ratings and the implications for the nine banks that have been identified as being potentially affected.
Factors that Moody's will consider in its assessment of systemic support include the size of the banking system in relation to government resources, the level of stress in the banking system, the foreign currency obligations of the banking systems relative to the government's own foreign exchange resources, and changes to the government's political patterns and priorities.
Moody's assesses the Philippines to be a low support country. This guideline takes into consideration the history of support for banks, plus the size, strength and degree of fragmentation of the Philippine banking system.
In a low support country under worsening economic conditions, Moody's current review focuses on the rationalisation of bank ratings that currently receive multiple notches of uplift due to systemic support.
This is particularly apparent for the Philippines, as illustrated by the eight-notch gap between the government bond rating of B1 and the local currency deposit ceiling of A2.
Moody's notes that today's rating actions reflect the increasingly negative impact of the global economic crisis on the Philippine economy and on the intrinsic strength of its financial institutions. Given the systemic nature of the crisis and the large, but not unlimited, resources of the Philippine government, Moody's has taken the view that the banks' local currency ratings need to be more closely aligned with the government's local currency debt rating, since it now represents the primary driver of their credit strength.
The Philippine banking system is relatively small, compared to its Asian counterparts, with banking assets equaling only 70% of GDP. The Philippine government's debt, low relative to GDP, is underpinned by the strong liquidity of the domestic banking and financial system.
This situation allows the government a high degree of flexibility to extend support to the banking system -- or at least to the top 10 banks, which Moody's believes are systemically important because they command close to 70% of system deposits -- through liquidity and capital assistance, as has previously happened. The banking system does not rely substantially on the supply of foreign currency to fund its operations.
The credit stress evident in the banking system is low relative to other Asian countries, following the worldwide economic recession. Banking system non-performing loans (NPLs) have remained resilient to the global downturn and have shown no signs of increase yet. In addition, Philippine banking system loans have experienced modest growth in the past 10 years, and have continued to experience growth during the course of 2009.
However, the rating review has been prompted by the severity and longevity of the global economic crisis -- as reflected by Moody's negative credit outlook on the Philippine banking system. 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.
With regard to political and historical patterns, necessary procedures and policy instruments to deal with banking system problems have been established and tested since the 1997 Asian financial crisis. In Moody's view, support is likely to be provided -- if needed -- for the very largest banks, but not for the smaller institutions. The support framework for problematic large banks will likely be aimed at maintaining ordinary banking functions and avoiding liquidation of any of these banks.
Moody's notes that the review is unlikely to lead to more than a four-notch change in the debt and deposit ratings of the institutions under review. It expects to conclude the review over the next few weeks.
No other bank ratings in the Philippines have been impacted by the reassessment of the systemic support level.
For more information, see Moody's recent report "Financial Crisis More Closely Aligns Bank Credit Risk and Government Ratings in Non-Aaa Countries" available on www.moodys.com.
PREVIOUS RATING ACTION AND PRINCIPAL METHODOLOGIES
The last rating actions for BDO, BPI, and DBP were on January 25, 2008 when the outlooks on their long-term foreign currency deposit ratings were changed to positive from stable.
The last rating action for ABC was on January 14, 2009, when its Ba3 local currency subordinated bond was confirmed, with a stable outlook.
The last rating action for LBP was on April 3, 2008, when its BFSR was upgraded to D-.
The last rating action for MBT was on August 28, 2008, when it was assigned a local currency subordinated debt rating of Baa3.
The last rating action for PNB was on May 13, 2008, when its BFSR rating was upgraded to E+.
The last rating action for RCBC was on June 2, 2008, when its BFSR was upgraded to D-.
The last rating action for UCPB was on May 3, 2003, when its BFSR was downgraded to E.
The principal methodologies used in rating these banks were "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.
The following ratings were placed on review for possible downgrade:
ABC -- local currency subordinated debt rating of Ba3
BDO -- local currency deposit ratings of Baa2/Prime-2
BPI -- local currency deposit ratings of A3/Prime-1
DBP -- local currency deposit ratings of A3/Prime-2
LBP -- local currency deposit ratings of A3/Prime-2
MBT -- local currency deposit ratings of Baa2/Prime-2; local currency subordinated debt of Baa3; foreign currency hybrid tier-1 rating of Ba3
PNB -- local currency deposit rating of Ba1; local currency subordinated debt of Ba2
RCBC -- foreign currency hybrid tier-1 rating of B1; foreign currency senior unsecured bond rating of Ba3
UCPB -- foreign currency deposit ratings of B1
The following ratings were not affected by today's action:
ABC -- BFSR of E+; foreign currency deposit ratings of B1/Not-Prime
BDO -- BFSR of D; foreign currency deposit ratings of B1/Not-Prime
BPI -- BFSR of C-; foreign currency deposit ratings of B1/Not-Prime
DBP -- BFSR of D; foreign currency deposit ratings of B1/Not-Prime
LBP -- BFSR of D-; foreign currency deposit ratings of B1/Not-Prime
MBT -- BFSR of D; foreign currency deposit ratings of B1/Not-Prime
PNB -- BFSR of E+; foreign currency deposit ratings of B1/Not-Prime; short-term local currency deposit rating of Not-Prime
RCBC -- BFSR of D-; foreign currency deposit ratings of B1/Not-Prime
UCPB -- BFSR of E
All nine banks are headquartered in Manila.
ABC was the 12th largest bank in the Philippines with total net assets of
P169 billion as of end-December 2008.
BDO was the largest bank in the Philippines with total net assets of P802 billion as of end- December 2008.
BPI was the 3rd largest bank in the Philippines with total net assets of
P667 billion as of end-December 2008.
DBP was the 6th largest bank in the Philippines with total net assets of P290 billion as of end-December 2008.
LBP was the 4th largest bank in the Philippines with total net assets of
P434 billion as of end-December 2008.
MBT was the 2nd largest bank in the Philippines with total net assets on of P765 billion as of end- December 2008.
PNB was the 5th largest bank in the Philippines with total net assets of
P275 billion as of end-December 2008.
RCBC was the 7th largest bank in the Philippines with total net assets of
P268 billion as of end-December 2008.
UCPB was the 14th largest bank in the Philippines with total net assets on a solo basis of P100 billion as of end-September 2008.
Singapore
Karolyn C. Seet
Asst Vice President - Analyst
Financial Institutions Group
Moody's Singapore Pte Ltd.
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Hong Kong
Jerry Chien
Managing Director
Financial Institutions Group
Moody's Asia Pacific Ltd.
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