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18 May 2009
Tokyo, May 18, 2009 -- Moody's Investors Service commented today that the local currency and
foreign currency ratings of the Japanese banks will not be affected by
the rating agency's decision, announced earlier today,
to unify the Government of Japan's local and foreign currency issuer ratings
at Aa2, raising its domestic currency bond rating (the JGB) from
Aa3 and lowering its foreign currency issuer rating from Aaa.
Earlier this month, Moody's commented on its global review of the
support capacity of a government and a central bank for its banking system
in the Special Comment titled "Financial Crisis More Closely Aligns
Bank Credit Risk and Government Ratings in Non-Aaa Countries."
Consistent with the analytical criteria specified in that report and in
light of Japan's current situation and future prospects, Moody's
has concluded that the systemic support input for Japan bank ratings should
remain at the previous Aaa level, which is two notches above Japan's
local currency government debt rating (Aa2). Accordingly,
Japanese bank ratings will not be affected.
In Moody's view, Japan has a highly supportive banking framework,
one characterized by the complete absence of bank deposit defaults in
the past several decades. This reflects the relative lack of bank
dis-intermediation in domestic corporate finance and deposit flows.
The government has also established two different types of re-capitalisation
programmes for systemically important banks and other banks. Furthermore,
the Japanese government has been proactive in supporting the banking system
in the current economic downturn by injecting preferred stocks into several
regional banks to assist their credit functions in the local economy.
The Bank of Japan's support programme has also included subordinated loan
facilities to large banks, equity purchase from banks, and
expansion in the range of eligible collateral.
In the Special Comment, Moody's points out that the appropriate
reference rating for the capacity of a national government to provide
support to banks typically would be the government's own debt rating
-- JGB at Aa2 for Japan. Moody's also believes that,
for the purpose of determining systemic support capacity, this rating
should be adjusted, usually positively, to reflect the non-fiscally
dependent measures that both central banks and governments can deploy
to support banks.
In deciding whether the local currency-denominated deposit of a
bank can be rated higher than the local currency-denominated debt
issued by the national government due to systemic support, Moody's
considers a number of factors for each banking system. These are
the size of the banking sector relative to the government's resources,
the level of stress in the banking system and in the economy, the
foreign currency obligations of the banking system relative to the government's
own foreign currency resources, political and historical patterns,
and the possibility of any drastic shift in government priorities.
With regard to Japan, the banking system is very large. System-wide
deposits total approximately JPY1,000 trillion, loans outstanding,
approximately JPY500 trillion. The Japanese government's
debt, although comparatively high relative to Japan's GDP,
is underpinned by the strong liquidity of the domestic banking and financial
system, allowing the government a high degree of flexibility in
extending support to the banking system through a number of ways,
including liquidity and capital assistance, as exemplified in the
past. As a logical corollary for such a system-wide profile,
the banking system does not rely on the supply of foreign currency to
fund its operations.
The credit stress in the banking system rose during 2008 following the
worldwide economic recession. Accordingly, banking system
NPLs, particularly those relating to the SME sector, have
been rising. However, Japan's banking system loans have experienced
no significant growth in the past ten years. The downward adjustment
of assets, including Japanese equity and real estate, continues,
but the degree of adjustment is modest in international perspective except
With regard to political and historical patterns, Japan has already
experienced severe asset deflation. Accordingly, necessary
procedures and policy instruments -- including the government's
solvency assistance measures -- to deal with banking system problems
have already been established and tested. In Moody's view,
the support framework likely to be activated for problematic large banks
will aim at the maintenance of ordinary banking functions without liquidating
the bank. This is based on the importance -- fully recognized
in political circles -- of the banking system in Japan's economy.
Senior Vice President - Regional Credit Officer
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's: Japan bank ratings unaffected by unified gov't ratings and review of systemic support in non-Aaa systems
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
No Related Data.
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