Tokyo, October 12, 2021 -- Moody's Japan K.K. has affirmed the long-term A3
bank deposit ratings of The Daishi Hokuetsu Bank, Ltd.
Moody's has also affirmed the bank's Baseline Credit Assessment
(BCA) and Adjusted BCA of baa2.
At the same time, Moody's has revised the outlook on the bank's
ratings, where applicable, to stable from negative.
The change in outlook to stable reflects Moody's view that the bank's
improved capital buffer and increasing profits because of reduced costs
and merger synergies will mitigate economic disruptions from the pandemic.
As a result, the bank's capital and liquidity will remain
stable over the next 12-18 months, despite a moderate deterioration
in loan quality.
A full list of affected ratings and assessments is at the end of this
press release.
RATINGS RATIONALE
Today's rating affirmation and outlook change to stable from negative
are driven by Daishi Hokuetsu Bank's unchanged financial fundamentals,
which have not been materially affected by the coronavirus pandemic.
A combination of the Japanese government's relief measures and Daishi
Hokuetsu Bank's financial support for local businesses prevented
a significant deterioration in the bank's asset quality and default
rates among small- and medium-size enterprises (SME) remain
low. The bank's unconsolidated credit costs in the fiscal
year ended March 2021 (fiscal 2020) declined by 33% from fiscal
2019's.
Daishi Hokuetsu Bank's BCA of baa2 takes into account Daishi Hokuetsu
Financial Group's (FG) (1) strong liquidity, which is firmly backed
by solid deposits and highly liquid securities, such as Japanese
government bonds; (2) improving profitability through cost reductions;
(3) higher capitalization; and (4) moderate asset risk.
Daishi Hokuetsu FG's tangible common equity/risk-weighted
asset (TCE ratio) increased to 9.45% as of the end of June
2021 from 8.80% a year earlier because of internal capital
generation and a decline in risk-weighted assets. The bank
is rebalancing its lending to SMEs and individuals, away from large
corporations, which resulted in almost no loan growth during the
period. Furthermore, many new SME loans are guaranteed by
credit institutions with zero or low risk weights, and therefore
do not result in higher RWA for the bank.
Moody's expects Daishi Hokuetsu Bank's profitability to improve
through reduced operating expenses and merger synergies. Daishi
Bank and Hokuetsu Bank merged to form Daishi Hokuetsu Bank and integrated
their systems in January 2021 after the two banks became wholly owned
subsidiaries of Daishi Hokuetsu Financial Group, Inc. in
October 2018. Daishi Hokuetsu Bank expects revenues and cost synergies
to contribute to earnings after incurring most of the integration-related
expenses in fiscal 2018-20.
Daishi Hokuetsu Bank will close about a quarter of its branches over the
two years starting from April 2021. The merger of the two banks,
which operate within the same prefecture, will result in meaningful
cost savings because many overlapping branches can be closed.
The bank's baa2 Adjusted BCA is the same as its baa2 BCA because Moody's
does not incorporate any affiliate support in the rating.
Daishi Hokuetsu Bank's A3 deposit ratings incorporate a two-notch
uplift from its BCA of baa2. The uplift reflects Moody's assessment
of a very high likelihood of government support for Daishi Hokuetsu Bank
in times of stress, given the bank's importance to the economy of
Niigata Prefecture and the prefecture's importance as a regional
economy.
Daishi Hokuetsu Bank's Counterparty Risk Ratings (CRR) are at A2/P-1,
and Counterparty Risk (CR) Assessments are at A2(cr)/P-1(cr).
Moody's considers Japan to be a jurisdiction with a nonoperational
resolution regime, and consequently applies a basic Loss Given Failure
approach in rating Japanese banks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade could occur if the bank increases its group's profitability
through higher non-interest income without significantly raising
additional risks, while maintaining its stable asset quality.
Factors that could result in a rating downgrade include Daishi Hokuetsu
FG facing (1) a TCE ratio falling below 9%; (2) declining
profitability because of increasing credit costs or losses from its securities
portfolio; (3) significant deterioration in asset quality; or
(4) worsening liquidity, due to an increased reliance on market
funds or investments in less liquid assets.
The principal methodology used in these ratings was Banks Methodology
(Japanese) published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269895.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The Daishi Hokuetsu Bank, Ltd., headquartered in Niigata
City, Niigata Prefecture, is a regional bank in Japan and
a principal operating subsidiary of Daishi Hokuetsu Financial Group,
Inc. As of the end of March 2021, the bank reported consolidated
assets totaling JPY9.6 trillion, while Daishi Hokuetsu Financial
Group reported consolidated assets of JPY11.0 trillion.
LIST OF AFFECTED RATINGS/ASSESSMENTS
The affirmed ratings and inputs to ratings are as follows:
- Baseline Credit Assessment (BCA): baa2
- Adjusted BCA: baa2
- Long-term Bank Deposit Rating (foreign/domestic):
A3, outlook changed to stable from negative
- Short-term Bank Deposit Rating (foreign/domestic):
P-2
- Long-term Counterparty Risk Assessment: A2(cr)
- Short-term Counterparty Risk Assessment: P-1(cr)
- Long-term Counterparty Risk Rating (foreign/domestic):
A2
- Short-term Counterparty Risk Rating (foreign/domestic):
P-1
- Outlook: changed to stable from negative
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Tomoya Suzuki
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: 81 3 5408 4110
Client Service: 81 3 5408 4100
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
