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27 Jan 1997
MOODY'S CHANGES RATING OUTLOOKS OF FOUR JAPANESE BANKS TO NEGATIVE
TOKYO, January 27, 1997-- Moody's Investors Service has changed the ratings outlooks to negative from stable for four Japanese banks: Nippon Credit Bank (NCB), Hokkaido Takushoku Bank, Yasuda Trust, and Chuo Trust. Moody's said that the change reflects its view that Japanese policy with respect to the resolution of distressed institutions is shifting from one of protection and forbearance to one of resolution via liquidation, which may expose creditors to risk. According to the rating agency, these banks have been experiencing serious asset quality problems; their prospective core earnings, existing capital, and reserves may not provide a sufficient cushion to absorb required loan-loss provisions. The weak financial fundamentals of these banks are reflected in their E bank financial strength ratings -- Moody's lowest financial strength rating.
The banks' ratings on long-term deposits, short-term deposits, and senior unsecured bonds of these banks are currently maintained at the investment grade level. These ratings are based on Moody's assumption that Japanese regulatory authorities will maintain their commitment to preventing a failure among the 20 major Japanese banks.
However, the ad hoc approach to previous failures taken by regulators has proven costly, the rating agency said, and the continued viability of the traditional framework for stabilizing the system has come into question. More importantly, several new laws concerning financial institutions were enacted in July 1996, and these provide authorities with substantially greater powers to take corrective actions in order to prevent bank failures. Under the new laws, thresholds for corrective actions based on regulatory capital requirements will become effective in April 1998, after which time distressed banks would be declared insolvent by regulators.
The rating agency expects that authorities will increasingly promote market discipline and more transparent accounting policies, in order to enforce the new laws and the standards they embody. This shift by the authorities deviates substantially from their traditional approach, which offered forebearance and protection. Consequently, the implicit regulatory support for Japanese financial institutions will likely decrease, and associated credit risk will increase over the medium term.
In Moody's opinion, these E-rated Japanese banks will not be able to resolve their asset quality problems using only their own resources in the near term. Because of the accelerating trend toward deregulation, pressure on their franchises is increasing as well, because the regulatory barriers between different forms of banking are likely to disappear or diminish dramatically over the medium term. With clearer regulatory guidelines to be offered under the new resolution framework, these weaker institutions may face constraints on their customary operations. Should these banks ultimately be resolved, certain classes of creditors may eventually be exposed to loss.
In addition, as a result of the heavy use of latent gains in recent years, the cost base of the equity investment portfolio of these institutions is approaching the actual market price level. Hence, their vulnerability to market conditions has been increasing. The recent volatility in the Japanese stock market has had a limited immediate impact on these banks' regulatory capital ratios so far. However, a sustained decline in stock prices may result in accounting losses that could ultimately erode their core capital. As regulators will rely on capital ratios to a greater extent, these institutions' weaker core capital subjects them to heightened regulatory scrutiny.
The Nippon Credit Bank, Ltd. is currently rated Baa3 for long-term deposits and Prime-3 for short-term deposits; its financial strength rating is E. Its senior unsecured debt is rated Baa3. Headquartered in Tokyo, NCB had total assets of ¥15.9 trillion (US$136 billion) as of September 30, 1996.
The Hokkaido Takushoku Bank, Ltd. is currently rated Baa3 for long-term deposits and Prime-3 for short-term deposits; its financial strength rating is E. Headquartered in Sapporo, Hokkaido Takushoku had total assets of ¥10.1 trillion (US$86 billion) as of September 30, 1996.
The Yasuda Trust and Banking Co., Ltd. is currently rated Baa2 for long-term deposits and Prime-3 for short-term deposits; its financial strength rating is E. Its senior unsecured debt is rated Baa2. Headquartered in Tokyo, Yasuda Trust had banking assets of ¥8.7 trillion (US$74.4 billion) as of September 30, 1996. Assets held in trust accounts were ¥30.4 trillion (US$260 billion) as of September 30, 1996.
The Chuo Trust and Banking Co., Ltd. is currently rated Baa3 for long-term deposits and Prime-3 for short-term deposits; its financial strength rating is E. Headquartered in Tokyo, Chuo Trust had banking assets of ¥4.0 trillion (US$34.2 billion) as of September 30, 1996. Assets held in trust accounts were ¥17.2 trillion (US$147 billion) as of September 30, 1996.
No Related Data.
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