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Global Credit Research - 03 Oct 2011
Tokyo, October 03, 2011 -- Moody's Japan K.K. says its outlook for Japan's
banking system is negative, as it has been since late 2008.
Even though Moody's expects a rebound in economic growth in 2H2011
-- due in large part to government spending on reconstruction
-- the rating agency also anticipates the operating environment to
remain difficult for banks and loan demand to stay low.
In such context, Moody's says the Japanese banks face two
key credit challenges. First, continued pressure is expected
on the asset quality of loans granted to small- and mid-sized
enterprises, which account for about 40% of total loans.
Second, profitability at Japanese banks will remain stubbornly weak.
For more than a decade, declining levels of corporate leverage,
a near-zero interest rate environment and fierce pricing competition
have squeezed net interest margins, resulting in weak pre-provision
profitability. Therefore, the banks have only a small earnings
cushion to absorb credit losses. Moody's does not see any
factor that could change this trend in the near term.
But, despite the challenges anticipated over the next 12-18
months, there are some positive aspects contributing to the resiliency
of Japanese banks.
The absence of any recent credit bubble and the generally strong creditworthiness
of large corporate borrowers -- after years of deleveraging,
and in contrast to Moody's' more cautious view on SMEs --
are limiting the extent to which asset quality can deteriorate.
Importantly, the level and quality of capital at Japanese banks
have increased, such that they are now better capitalized than many
of their international peers. In particular, each of the
three mega-bank groups has strengthened capitalization through
large equity issues since 2008.
Funding and liquidity are other strengths. Credit quality is underpinned
by strong core deposit bases, large amounts of liquid assets,
and high depositor and counterparty confidence.
The analysis is part of Moody's latest outlook for the Japanese
banking system, and which was published on October 3. Moody's
rates 38 Japanese banks, which account for about half of the JPY1,000
trillion in deposits in the banking system.
Moody's Banking System Outlook for Japan follows Moody's downgrade
of the major Japanese financial institutions in late August, and
which was linked to the downgrade of the Japanese government bond rating.
(See press release: Moody's takes negative rating actions on most
Japanese banks following sovereign downgrade, August 24.)
The banks rated by Moody's can be broken down in five groups:
1) the three mega-bank groups -- Mitsubishi UFJ Financial
Group, Sumitomo Mitsui Financial Group, and Mizuho Financial
Group -- comprising nine individual banks; 2) 10 so-called
"major" banks, which belong to different banking groups;
3) two central institutions of banking cooperatives; 4) 15 regional
banks; and 5) two government-owned banks.
The report is entitled, Banking System Outlook: Japan.
It can be found at www.moodys.com
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Kyosuke Kaji
Asst Vice President - Analyst
Financial Institutions Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
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Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
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Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's: Outlook for Japan's banking system remains negative
No Related Data.
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