Moody’s Investor Service has downgraded the subordinated debt ratings of two local banks amid the global trend of regulators providing less support to lenders at risk of going under.
In a statement, Moody’s identified these banks as Philippine National Bank and Rizal Commercial Banking Corp.
The move reflects the increasing international trend of “imposing losses” on holders of subordinated debt as a pre-condition for distressed banks to receive government support.
As a consequence, Moody’s no longer assumes that Philippine government support would be forthcoming for the holders of such securities.
“We recognize that the Philippines’ central bank, Bangko Sentral ng Pilipinas (BSP), has in the past stepped in to assist ailing banks in a way that supported all creditors,” Moody’s assistant vice president Simon Chen said.
“However, the global financial crisis has demonstrated that support can be provided selectively, with the costs being shared with subordinated creditors of a bank, without triggering any contagion, as it was previously feared,” he added.
Moody’s analysis observes that the Philippines has a modern and progressive approach to bank regulation. There is no explicit legal power allowing Philippine regulators to selectively impose losses on sub-debt holders outside of the liquidation process.
The current banking regulations, including the General Banking Law of 2000 and the New Central Bank Act, provide for an ailing bank to be placed under control by the regulatory authorities, with powers to wind up and/or restructure the ailing bank’s operations.
“In our view, such recourse could be used to coerce sub-debt holders into a distressed exchange, if not for the outright imposition of losses on them outside of liquidation,” Chen said. Paolo G. Montecillo