Would the top 9 Philippine banks survive the global economic crisis if the government is constrained to support the industry players?

International credit rating agency Moody's Investors Service is posing this question as it reviews the deposit and debt ratings of the country's biggest banks.

The review covers Banco de Oro Unibank Inc., Allied Banking Corp., Bank of the Philippine Islands, Development Bank of the Philippines, Land Bank of the Philippines, Metropolitan Bank and Trust Co., Philippine National Bank, Rizal Commercial Banking Corp., and United Coconut Planters Bank. Moody's considered these banks since they account for close to 70 percent of total deposits in the country.

On Wednesday, Moody's announced that the "increasingly negative impact" of the global economic crisis on the Philippine economy and on the intrinsic strength of its financial institutions prompted the review.

The review is a top-down approach and anchored on the capacity of the Bangko Sentral ng Pilipinas to support its financial system--a model that is likely a take off from the stress test on US banks that prompted the plans to infuse hundred billion dollars more into their financial system.

The review will consider how capable the Philippine government is to extend this support considering the government also needs to mind other aspects of the economy hit by the worldwide economic slowdown.

"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," said Karolyn Seet, Moody's assistant vice president and analyst of the agency's Financial Institutions Group.

Seet said Moody's would be reassessing the level of systemic support for the 9 banks to determine if this support needs to be adjusted. The assessment will consider 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.

"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," Moody's said.

Moody's said the local currency ratings of banks would have to closely mirror that of the government's local currency debt rating, which is now at B1. Currently, the local currency rating on Philippine bonds reflects between 2 to 6 notches of systemic support.

The rating agency also noted the "eight-notch gap between the government bond rating of B1 and the local currency deposit ceiling of A2."

If Moody's decides to close the gap between the ratings of the sovereign issues and those of local banks, the ratings on the latter are likely to be downgraded.

Moody's, however, noted that the local banking system is relatively small compared to its Asian counterparts, with banking assets equaling only 70 percent of gross domestic product.