By LEE C. CHIPONGIAN Moody’s Investor Service has downgraded its Philippine banking outlook from stable to negative as they see rising asset risks and “increasing pressure” on bank profits as a result of the COVID-19 pandemic lockdown. In its latest assessment report, “Banking System Outlook Update - The Philippines” released yesterday, April 2, Moody’s said they do see that local banks’ capital buffers are expected to remain healthy and strong, and its fund¬ing conditions “will be stable” amid the coronavirus outbreak. But, it said banks’ operating environment and profitability “will weaken” and its asset quality “will deteriorate as economic growth slows sharply.” Moody’s, however, expects the government to continue to have the banking sector’s back while dealing with the adverse economic impact of the global health scare. “Government support will remain strong,” said Moody’s. “We expect the government to prioritize systemic stability and support … when needed.” As for banks’ forseen problems while on lockdown, Moody’s said operating environment will weaken because of a material slowdown in growth this year. “Large parts of the country are under a lockdown, which will severely constrict economic activity. The number of confirmed coronavirus cases is increasing, so restrictions on activity may remain in place for a prolonged period, further weakening the economic outlook. Further, remittances may decline due to disruptions in the Middle East and the United States, the two largest origins of remittances to the Philippines,” said Moody’s. Moody’s said banks’ profitability will naturally be affected with rising credit costs as asset quality deteriorates. “Philippine banks credit costs have been among the lowest in Asia, benefiting from healthy economic conditions, and this has supported profitability despite low pre-provisioning profit as a percentage of assets compared to banks in other emerging markets in the region. Net interest margins (NIM) will be supported by low reserve requirements but conversely lower interest rates will pressure NIM,” said Moody’s. Also, with weakened asset quality, the risks from “concen¬trated exposures to large domestic conglomerates” are also heightened. “These business groups may withstand immediate disruptions but if the situation persists for a prolonged period, debt payment capacity of weaker companies will deteriorate materially,” said Moody’s. It added that the country’s conglomerates have significantly increased investment in the past few years, which has resulted in growth in their debt. “Because banks' loans are heavily concen-trated on them, even a default by one of them will weaken asset quality in the overall banking system. In addition, the quality of loans to small and medium-sized enterprises and retail borrowers will weaken because they have limited buffers against stress.” In the meantime, Moody’s believe that banks’ capital base should con¬tinue to be strong. “Capitalization will be stable at strong levels as growth in both retained earnings and loan growth slows,” it said. Banks’ funding conditions is also a strong side since deposits is a primary source of income, that the local banking system is “largely deposit funded, and risks to the stability of banks' deposit bases are low.” Moody’s rate nine big banks and all these banks accounted for 80 percent of the country’s total banking assets. These rated banks are BDO Unibank, Metropolitan Bank & Trust Co., Bank of the Philippine Islands, Land Bank of the Philippines, Philippine National Bank, China Banking Corp., Security Bank Corp., Union Bank of the Philippines, Rizal Commercial Banking Corp. and United Coconut Planters Bank.