Moody’s upgrades Metrobank rating, cuts PNB, RCBC

MANILA, Philippines - Moody’s Investors Service has affirmed its upgrade of Metropolitan Bank & Trust Co’s subordinated debt rating.

In a statement, Moody’s said the confirmation came after the bank’s rating was placed on review for upgrade last July 25 together with the bank’s deposit ratings.

“The uplift from this debt class means that subdebt ratings would now generally move in tandem with a bank’s baseline credit assessment (BCA),” it said.

“(Metrobank’s) long-term local currency subordinated debt rating Ba2, confirmed with a stable outlook,” it added.

Meanwhile, Moody’s downgraded the subdebt ratings of Philippine National Bank (PNB) and Rizal Commercial Banking Corp. (RCBC).

The downgrade of the two banks’ subdebt rating was an offshoot of a review conducted by Moody’s last June 3 to re-assess the probability of government support that was assumed for this debt class.

“Moody’s concluded its review by removing the support uplift previously incorporated in the banks’ subdebt ratings, resulting in these banks’  subdebt now being rated one notch below their BCAs adjusted for parental support,” it said.

The international rating agency, however, pointed out that the three banks’ senior obligation ratings and their stand-alone BCA were not affected.

Moody’s said its downgrade reflects the increasing international trend of imposing  losses on holders of subdebt securities (creditor “bail-in”) 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,” it said.

“We recognize that the Philippines’ central bank, Bangko Sentral ng Pilipinas, has in the past stepped in to assist ailing banks in a way that supported all creditors,” Moody’s assistant vice president and analyst 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.

In deciding on the downgrade, 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  subdebt holders outside of a liquidation process,” it said.

“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 subdebt holders into  a distressed exchange, if not for the outright imposition of losses on  them outside of liquidation,” Chen said.

As a consequence, he said Moody’s assumes that the Philippine government support would be much less likely.

Moody’s, however, pointed out that this rating action relates only to the rating agency’s view on the potential for  systemic support for the banks’ junior securities. It does not reflect  any change in the banks’ intrinsic credit quality or in the support  assumptions for issuer or senior debt ratings.

In recent years, Moody’s said losses have been imposed on the holders of junior securities during the resolution of troubled banks in crisis-hit countries.