BANGALORE -- Moody's Investors Service said, in a report on overviews of banking systems worldwide, that banks in the Philippines are exposed to potentially high credit losses due to their operating environment.

Besides the moderately high volatility in the Philippines' business cycles, credit losses have historically been exacerbated by weak governance, Moody's said.

"Bank credit risk in the Philippines has been elevated by a difficult operating environment, a new and developing supervisory and regulatory framework and low level of government support," S&P said.

The ratings agency said these challenges outweigh the benefits derived from the dominant role of banks within the financial system, which have historically faced little competition from domestic capital markets or non-bank financial institutions and developed strong earnings profiles.

The ratings agency said reforms to the Philippine banking system, undertaken since the Asian currency crisis, helped to improve the regulatory and supervisory system, but confidence would be enhanced by greater transparency, formalization of procedures and institutionalization of reforms.