NOTE: On September 11, 2019, the press release was corrected as follows: In the third sentence of the third paragraph of the RATINGS RATIONALE section, the TCE/RWA was changed to 11.3%. Revised release follows.
Tokyo, August 28, 2019 -- Moody's Japan K.K. has today affirmed the A1 senior
unsecured debt ratings of the three Japanese megabank groups, namely,
Mitsubishi UFJ Financial Group, Inc. (MUFG), Sumitomo
Mitsui Financial Group, Inc. (SMFG), and Mizuho Financial
Group, Inc. (Mizuho).
In addition, Moody's has affirmed the A1 long-term
and Prime-1 short-term deposit ratings of the three groups'
main subsidiary banks — namely, MUFG Bank, Ltd.,
Sumitomo Mitsui Banking Corporation (SMBC) and Mizuho Bank, Ltd.,
with stable outlooks.
Moody's has also affirmed SMBC's a3 Baseline Credit Assessment
(BCA) and adjusted BCA, and Mizuho Bank's baa1 BCA and adjusted
BCA.
At the same time, Moody's has placed on review for downgrade,
MUFG Bank's a3 BCA and adjusted BCA.
Moody's affirmed the A1 long-term senior unsecured debt and
deposit ratings of the three megabanks, reflecting Moody's
assessment of a very high probability of government support for the banks
in times of stress, given the banks' importance to Japan's
financial system.
MUFG and SMFG's A1 long-term senior unsecured debt ratings
and their subsidiary banks' A1 long-term deposit ratings
incorporate a two-notch uplift for government support from the
banks' a3 adjusted BCAs. Mizuho's A1 long-term
senior unsecured debt ratings and Mizuho Bank's long-term
deposit ratings incorporate a three-notch uplift for government
support from the bank's baa1 adjusted BCA.
Japan's persistent ultralow interest rate environment has led to
a challenging operating environment for banks in the country. Specifically,
the situation has led to structurally weak and declining core profitability.
Moody's has captured these challenges by lowering the Macro Profile it
assigns to Japan to Strong from Strong+ by applying a negative one-notch
adjustment to the Industry Structure score.
While the megabanks are less affected by the operating environment than
Japanese regional banks because of the large banks' greater international
and product diversification, Japan is their core market and net
interest margins will remain pressured. Their profitability is
also negatively affected by investment in technology and process re-engineering,
while credit costs are likely to normalize somewhat in the context of
the slowing global economy.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_204276
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Moody's placed MUFG Bank's a3 BCA and adjusted BCA on review
for downgrade because its core earnings profile may no longer be consistent
with its current BCA. Moreover, it has not been building
its capital as rapidly as its competitors, partly because of its
higher returns to shareholders versus its megabank peers. MUFG's
consolidated tangible common equity/risk-weighted assets (TCE/RWA)
of 10.2% at March 31, 2019 was relatively weak when
compared with the bank's BCA, and as against other global
systemically important banks. Its liquidity profile remains very
strong, especially in yen, and is not a focus of Moody's
review.
Despite the challenging environment, Moody's affirmed SMBC's
a3 BCA and adjusted BCA because it has consistently maintained stronger
profitability than other megabanks in recent years, helped by contributions
from its non-banking subsidiaries and affiliates. SMFG's
consolidated capital ratios have also improved, and are the strongest
of its peer group, as measured by its TCE/RWA of 13.8%
at March 31, 2019. Asset quality remains very strong,
and the bank's risk appetite does not appear to be increasing materially.
The bank's liquidity profile remains very strong, especially
in yen.
Moody's also affirmed Mizuho Bank's baa1 BCA and adjusted
BCA. While the bank shows the weakest profitability of its megabank
peer group, this gap is adequately accounted for by its BCA,
which is one notch lower when compared with SMBC. Mizuho continues
to exhibit low asset risk and has strengthened its capitalization,
as demonstrated by its TCE/RWA of 11.3% at March 31,
2019. As with the other megabanks, its liquidity profile
continues to be very strong, especially in yen.
The affirmation of the three banks' A1 long-term ratings
reflects Moody's assumption of a very high likelihood of government
support for the banks, in times of need. In the case of MUFG,
even if Moody's lowers the bank's BCA by one notch,
all its credit ratings would likely be affirmed, because the support
notching would be widened by one notch.
The A1 ratings assigned to the senior unsecured bonds issued by MUFG,
SMFG, and Mizuho are at the same level as the A1 long-term
ratings assigned to the subsidiary banks, reflecting Moody's
assessment of a very high likelihood of government support that will benefit
the banks and the holding companies equally.
FACTORS THAT COULD LEAD TO AN UPGRADE OF MUFG
MUFG's ratings are unlikely to be upgraded, given that they
are already at the same level as the Government of Japan's sovereign
rating of A1, with a stable outlook.
In addition, upward pressure on the bank's BCAs is unlikely,
given that it is on review for downgrade. The bank's BCA
and adjusted BCA may be confirmed, if it demonstrates a clear path
to improving core profitability and capitalization.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF MUFG
The rating review will focus on MUFG's plans to boost earnings streams
in the coming years to offset the negative impact of continuing pressure
on net interest margins, heavy investments in technology,
and the likely normalization of its credit costs. A BCA and adjusted
BCA downgrade is likely, if Moody's judges that it will be
difficult for the bank to stabilize its earnings, without material
reliance on realized gains from its equity holdings. The review
will also focus on the bank's capitalization targets.
FACTORS THAT COULD LEAD TO AN UPGRADE OF SMFG AND MIZUHO
The ratings of SMFG and Mizuho are unlikely to be upgraded, given
that they are already at the same level as the Government of Japan's
sovereign rating.
In addition, upward pressure on the banks' BCAs is unlikely,
unless there is a material change in Japan's operating environment that
is conducive to higher profitability and leads to stronger capital generation.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF SMFG and MIZUHO
The ratings could be downgraded if (1) core profitability continues to
decline; (2) the banks undertake acquisitions or expansions that
materially increase their overall risk profile relative to their capital
base; (3) Japan's sovereign rating is downgraded; or (4)
there is a reduction in Moody's assumption of government support
incorporated into the senior unsecured and subordinated instruments,
which could occur, if the government's support framework changes
and moves toward supporting particular debt class(es) rather than the
banking entity that includes the bank holding company.
The principal methodology used in these ratings was Banks (Japanese) published
in August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Tokyo, Mitsubishi UFJ Financial Group, Inc.
is the largest of the three megabanks in terms of total assets.
At the end of March 2019, the bank reported consolidated assets
totaling JPY311 trillion.
Headquartered in Tokyo, Sumitomo Mitsui Financial Group, Inc.
is the second largest of the three megabanks in terms of total assets.
At the end of March 2019, the bank reported consolidated assets
totaling JPY204 trillion.
Headquartered in Tokyo, Mizuho Financial Group, Inc.
is the smallest of the three megabanks in terms of total assets.
At the end of March 2019, the bank reported consolidated assets
totaling JPY201 trillion.
REGULATORY DISCLOSURES
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Shunsaku Sato
VP - Senior Credit Officer
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
