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Related Issuers
Rating Action:

Moody's confirms MUFG China's A3 long-term deposit ratings; outlook stable

25 Nov 2019

Hong Kong, November 25, 2019 -- Moody's Investors Service has confirmed MUFG Bank (China), Ltd.'s (MUFG China) A3 long-term deposit ratings. At the same time, Moody's has affirmed MUFG China's baa3 Baseline Credit Assessment (BCA), and confirmed the bank's a3 Adjusted BCA.

Today's rating action concludes the review for downgrade on MUFG China initiated on 4 September 2019, following Moody's affirmation of MUFG Bank, Ltd.'s (MUFG Bank) A1 long-term deposit ratings and confirmation of MUFG Bank's BCA, the parent of MUFG China. For more details, please see the press release for MUFG Bank at https://www.moodys.com/research/Moodys-affirms-MUFGs-ratings-with-a-stable-outlook-confirms-MUFG--PR_413291

The outlook on the ratings is stable.

A list of all affected ratings and assessments is provided at the end of this press release.

RATINGS RATIONALE

MUFG China's A3 long-term deposit ratings incorporate the bank's baa3 BCA and a three-notch uplift based on Moody's assessment of a very high level of affiliate support from the parent, in times of need.

MUFG China's baa3 BCA reflects its stable asset quality and steady capitalization. The bank does not rely on significant external market funding and it has strong liquidity. However, its profitability was volatile during 2017-2018. The bank holds lower loan positions and higher investment positions as of total assets than its peers. The investment gain or loss will have a large impact on profitability.

Moody's expects MUFG China's asset quality to remain stable, because the bank is selective with its corporate clients, mainly servicing subsidiaries of Japanese and multinational companies. However, its loan book is concentrated in the manufacturing sector, introducing potential risks

.

The bank's capital position is strong, as reflected by its tangible common equity (TCE) ratio of 17.4% at the end of 2018, which was higher than its peers, driven by declining bank loans and risk-weighted assets (RWAs). Moody's expects the bank's TCE ratio will moderate if the bank's assets increase.

MUFG China holds ample liquid assets, with its liquid assets significantly exceeding the use of market funds.

Moody's does not have particular governance concern for MUFG China, and does not apply corporate behavior adjustment to the bank.

MUFG China's a3 adjusted BCA incorporates a three-notch uplift for affiliate support, reflecting Moody's assessment of a very high level support from MUFG Bank in times of need, underpinned by the fact that the bank is a wholly-owned subsidiary and plays a critical role serving the banking needs of the group's customers in China.

China (A1 stable) does not have an operational resolution regime. Therefore, Moody's applies a basic Loss Given Failure approach in rating MUFG China's long-term deposits, Counterparty Risk Rating (CRR) and Counterparty Risk Assessment (CR Assessment). Moody's Preliminary Rating Assessment (PRA) on MUFG China's CRR and CR Assessment is one notch higher than the bank's adjusted BCA, while the PRA on the bank's deposit is positioned at the same level as its adjusted BCA.

In light of MUFG China's small market share in China, Moody's does not factor in any government support from the Government of China in MUFG China's deposit ratings, CRR and CR Assessment,

WHAT COULD CHANGE THE RATING UP

Given the very high level of parental support, Moody's could upgrade the ratings if the parent's BCA is upgraded. In addition, the bank's BCA could be upgraded if (1) its profitability -- as measured by return on assets -- improves significantly on a sustained basis and; (2) its business diversification improves.

WHAT COULD CHANGE THE RATING DOWN

Moody's could downgrade the bank's ratings if its parent's BCA is downgraded. In addition, the bank's BCA could be downgraded if (1) its asset quality, as measured by rate of problem loan formation, deteriorates; and/or (2) its capitalization weakens. A material weakening of the operating environment, whereby China's economic growth moderates or corporate financial leverage continues to increase, would also pressure the bank's BCA.

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

MUFG Bank (China), Ltd. is headquartered in Shanghai. The bank's assets totaled RMB156.7 billion (USD21.9 billion) at 31 December 2018.

LIST OF AFFECTED RATINGS/ASSESSMENTS:

- Long-term local and foreign currency deposit ratings confirmed at A3, STA

- Short-term local and foreign currency deposit ratings affirmed at P-2

- Long-term/short-term local and foreign currency Counterparty risk rating confirmed at A2/P-1

- Long-term/short-term Counterparty risk assessment confirmed at A2(cr)/P-1(cr)

- BCA affirmed at baa3

- Adjusted BCA confirmed at a3

- Outlook is stable

The local market analyst for these ratings is Yan Li, +86-10-6319 6561.

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.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Sonny Hsu, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Minyan Liu, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​

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