MOODY'S ASSIGNS FINANCIAL STRENGTH RATINGS TO 50 JAPANESE BANKS
Tokyo, 8/21/1995 -- Moody's Investors Service assigned Bank Financial Strength Ratings (BFSRs) to 50 Japanese banks. To differentiate the new ratings from its traditional Aaa-through-C credit ratings, Moody's BFSRs use a different letter scale, ranging from A ("exceptional") to E ("very weak" -- see full definitions below).
Moody's said that BFSRs are intended to provide creditors with a measure of a bank's "intrinsic safety and soundness" on a strict legal-entity basis. Moody's emphasized that, unlike its traditional credit ratings, BFSRs are not intended to measure the risk of credit loss -- i.e., the risk that a bank will miss payments on its deposits or other fixed-income obligations. Instead, BFSRs provide a comparative indicator of what an institution's creditworthiness would be on a stand-alone basis, and as such, they should be viewed by investors solely as one component of a bank's credit risk. In this context, Moody's emphasized that BFSRs do not in any way negate or diminish the meaning and the value of Moody's traditional deposit ratings.
Moody's said that the Japanese BFSRs range from B to E. One bank, Shizuoka Bank, received a rating of B. In addition, 3 banks were rated C+, 10 were rated C, 10 were rated D+, 16 were rated D, 7 were rated E+, and 3 were rated E. The average BFSR for the 50 banks is D, while Moody's average deposit rating for the same banks is A3.
Moody's said that it has introduced BFSRs in response to the desire of bank investors -- particularly interbank and counterparty credit departments -- for Moody's assessment of a given bank's credit profile without reference to support mechanisms, ownership, or membership in a banking group. In many instances, banks with identical deposit ratings have different BFSRs. This occurs most frequently in two circumstances: (1) when low sovereign rating ceilings push downward the deposit ratings of otherwise strong banks, and (2) when the deposit ratings of weak banks are supported to various degrees by implicit or explicit support -- coming either from parent or affiliated companies or having an official nature.
The rating agency noted that the attached listing of BFSRs is accompanied by traditional long- and short-term deposit ratings for each bank. The BFSRs should be viewed as a descriptive and component part of Moody's traditional deposit ratings. The analysis underlying BFSRs is incorporated into the deposit ratings along with relevant external considerations that can significantly affect a bank's ability to meet its obligations.
The Japanese bank rating assignments are part of a program to assign BFSRs to all banks worldwide for which Moody's currently maintains bank deposit ratings. Like Moody's credit ratings, Bank Financial Strength Ratings will be globally comparable across countries and currencies, and they will be consistent in their meanings over time. Moody's is currently in the midst of assigning BFSRs to more than 600 banks worldwide for which it currently has bank deposit ratings. The new ratings are being assigned on a country-by-country basis to banks in each of the 40 countries with rated institutions. BFSRs will be publicly available through Moody's information centers, publications, and press announcements. Rating changes will also be announced publicly.
Definitions: Moody's Bank Financial Strength Ratings
Moody's Bank Financial Strength Ratings represent Moody's opinion of a bank's intrinsic safety and soundness and, as such, exclude certain external credit risks and credit support elements that are addressed by Moody's traditional debt and deposit ratings. Unlike Moody's traditional debt ratings, Bank Financial Strength Ratings do not address the probability of timely payment. Instead, Bank Financial Strength Ratings can be understood as a measure of the likelihood that a bank will require assistance from third parties such as its owners, its industry group, or official institutions. Bank Financial Strength Ratings do not take into account the probability that the bank will receive such external support, nor do they address risks arising from sovereign actions that may interfere with a bank's ability to honor its domestic or foreign currency obligations.
Factors considered in the assignment of Bank Financial Strength Ratings include bank-specific elements such as financial fundamentals, franchise value, and business and asset diversification. Although Bank Financial Strength Ratings exclude the external factors specified above, they do take into account other risk factors in the bank's operating environment, including the strength and prospective performance of the economy, as well as the structure and relative fragility of the financial system, and the quality of banking regulation and supervision.
The definitions for Moody's Bank Financial Strength Ratings (which have been revised slightly since they were announced in November) are as follows:
Banks rated A possess exceptional intrinsic financial strength. Typically, they will be major institutions with highly valuable and defensible business franchises, strong financial fundamentals, and a very attractive and stable operating environment.
Banks rated B possess strong intrinsic financial strength. Typically, they will be important institutions with valuable and defensible business franchises, good financial fundamentals, and an attractive and stable operating environment.
Banks rated C possess good intrinsic financial strength. Typically, they will be institutions with valuable and defensible business franchises. These banks will demonstrate either acceptable financial fundamentals within a stable operating environment, or better than average financial fundamentals within an unstable operating environment.
Banks rated D possess adequate financial strength, but may be limited by one or more of the following factors: a vulnerable or developing business franchise-- weak financial fundamentals-- or an unstable operating environment.
Banks rated E possess very weak intrinsic financial strength, requiring periodic outside support or suggesting an eventual need for outside assistance. Such institutions may be limited by one or more of the following factors: a business franchise of questionable value-- financial fundamentals that are seriously deficient in one or more respects-- or a highly unstable operating environment.
Where appropriate, a "+" may be appended to ratings below the "A" category to distinguish those banks that fall into intermediate categories.
The following Bank Financial Strength Ratings (BFSR) were assigned to Japanese banks:
BANK -- LONG-TERM/SHORT-TERM DEPOSIT RATING, BFSR
Asahi Bank -- A2/P-2, D+
Ashikaga Bank -- A3/P-2, D
Bank of Fukuoka -- A3/P-2, D+
Bank of Kyoto -- Baa2/P-2, D
Bank of Tokyo -- Aa3*/P-1, C+*
Bank of Yokohama -- A3/P-2, D+
Chiba Bank -- A2/P-1, C
Chugoku Bank -- A2/P-1, C
Chuo Trust and Banking -- Baa2**/P-3**, E
Dai-Ichi Kangyo Bank -- A1/P-1, C
Daishi Bank -- Baa1/P-2, D
Daiwa Bank -- A3/P-2, D+
Fuji Bank -- A1/P-1, C
Gunma Bank -- A1/P-1, C
Hachijuni Bank -- A2/P-1, C
Hiroshima Bank -- Baa2/P-2, D
Hokkaido Bank -- Baa2/P-2, E+
Hokkaido Takushoku Bank -- Baa2**/P-3**, E
Hokuriku Bank -- Baa1/P-2, D
Hyakugo Bank -- A3/P-2, D+
Hyakujushi Bank -- Baa1/P-2, D
Industrial Bank of Japan -- A1/P-1, C
Iyo Bank -- A3/P-2, D+
Joyo Bank -- A1/P-1, C
Juroku Bank -- Baa1/P-2, D
Kiyo Bank -- Baa2/P-3, E+
Long-Term Credit Bank of Japan -- A3**/P-2, D**
Mitsubishi Bank -- Aa3*/P-1, C+*
Mitsubishi Trust and Banking -- Baa1/P-2, D
Mitsui Trust and Banking -- Baa2/P-2, E+
Nanto Bank -- Baa2/P-3, E+
Nippon Credit Bank -- Baa2**/P-3**, E
Nippon Trust Bank -- A2/P-1, E+
Norinchukin Bank -- A1/P-1, E+
Ogaki Kyoritsu Bank -- Baa1/P-2, D
Sakura Bank -- A2**/P-1**, D+**
San-in Godo Bank -- Baa1/P-2, D
Sanwa Bank -- Aa3/P-1, C+
Shiga Bank -- Baa2/P-2, D
Shizuoka Bank -- Aa3/P-1, B
Shoko Chukin Bank -- Aa3/P-1, D
Sumitomo Bank -- A1/P-1, C
Sumitomo Trust and Banking -- Baa1/P-2, D
Suruga Bank -- Baa1/P-2, D
Tokai Bank -- A2/P-2, D+
Toyo Trust and Banking -- Baa1/P-2, D
Yamaguchi Bank -- A2/P-1, C
Yasuda Trust and Banking -- Baa2/P-3, E+
Zenshinren Bank -- A1/P-1, D+
77 Bank -- A3/P-2, D+
* Under review for possible upgrade.
** Under review for possible downgrade.
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