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25 Mar 1998
MOODY'S CONFIRMS DEPOSIT RATINGS OF FOUR REGIONAL BANKS AT Baa3/Prime-3, LOWERS BANK FINANCIAL STRENGTH RATINGS TO E
TOKYO, 03-25-98 -- Moody's Investor Services confirmed Baa3/Prime-3 deposit ratings of four Japanese regional banks but lowered their bank financial strength rating to E from E+. The subject banks are, Ashikaga Bank, Kiyo Bank, Hokkaido Bank, and Hokuriku Bank. Moody's also lowered Ashikaga Bank's senior debt rating and counterparty rating to Ba1 from Baa3, and confirmed Hokuriku Bank's Ba2/Ba3 subordinated debt ratings. The ratings of Hokkaido Bank were placed on review for possible downgrade on March 19, 1997, and three other regional banks have been on Moody's Watchlist since December 3, 1997, also for possible downgrade. This concludes the reviews of the four banks.
Moody's said that the confirmation of deposit ratings reflects the rating agency's high confidence in the availability of systemic support for depositors of regional financial institutions, now backed by ¾30 trillion of financial resources at regulators' disposal up to the year 2001.
Nevertheless, each of these regional institutions' intrinsic strength remains relatively weak and will likely face significant financial and competitive pressure going forward, Moody's said. In Moody's opinion, the concept of market discipline is likely to be more fully introduced after March, 2001. Yet, the impact on non-depository obligations such as senior debt remains uncertain, and therefore, the long-term debt rating and counterparty rating for Ashikaga Bank was differentiated from the banks' deposit ratings.
The following is a summary of each bank:
Despite the bank's efforts to decrease disclosed non-performing loans, Ashikaga Bank's disclosed nonperforming loans are still high. In Moody's view, although the bank's Tier II capital base will be increased by a capital injection under the Japanese Government Financial Stabilization Program, the size of potential losses from problem loans may continue to remain large. The introduction of "assessment of assets" under the Prompt Corrective Action supervisory standard and a deteriorating regional economic environment may further pressure the bank to recognize embedded losses in its loan portfolio. The bank has a strong foothold in the Tochigi prefecture, supported by a strong retail and middle market customer base, however, the revenue improvement from the restructuring plan currently implemented may be minimal and, consequently, improvement in its financial position, especially capitalization, may be more difficult.
Hokkaido Bank's disclosed nonperforming loans are very high, exceeding its reserves and equity capital. In addition, the bleak outlook for the regional economy may result in more local bankruptcies, which may further deteriorate the bank's asset quality. The bank has a solid presence in the Hokkaido region, but due to the region's high competitive pressure, coupled with heavy carrying costs of nonperformers, its profit margin is not expected to improve over the intermediate term. In Moody's view, such conditions will leave the bank's capital position relatively weak, and its solvency will remain under pressure. The operating assets of Hokkaido Takushoku Bank, which failed in November 1997, will be transferred to North Pacific Bank, another regional bank in Hokkaido. This will create even a larger regional bank in the Hokkaido region, which may affect Hokkaido Bank's regional franchise as well.
Hokuriku Bank's asset quality problem is serious. With relatively high concentration in the problematic construction sector, the bank's prospective credit costs going forward may substantially damage its already thin capital. In Moody's view, although the bank's Tier II capital base will be increased by a capital injection under the Japanese Government Financial Stabilization Program, Hokuriku's economic capital will continue to be pressured by potential losses from the problem loans. Historically, Hokuriku Bank has geographically diversified its operating targets, including Hokkaido Prefecture and Tokyo/Osaka metropolitan areas. In Moody's view, Hokuriku's competitiveness in such outer regions will likely continue to decline, further pressuring the bank's core profitability. Recently, the bank announced a restructuring plan, including withdrawal from overseas markets. This may positively impact the bank's overall efficiencies, but profit contribution may be marginal.
Despite the bank's restructuring efforts and withdrawal from international operations, Kiyo Bank's disclosed nonperforming loans are still high. In Moody's view, the bank's loan loss reserves and equity capital may be continuously pressured by the potential losses from its problem debts and may be additionally pressured by portfolio quality deterioration of its local middle market portfolio, including loans to the construction sector. The introduction of "assessment of assets" under the Prompt Corrective Action supervisory standard may narrow the room for delayed recognition of losses in the bank's middle market portfolio in light of a weak regional economic environment. The bank has a strong foothold in the Wakayama prefecture, supported by a strong retail and middle market customer base, however, the revenue improvement from the restructuring plan currently implemented may be minimal and, consequently, improvement in its financial position, especially capitalization, may be more difficult.
No Related Data.
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