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Rating Action:

Moody's takes rating actions on 12 Japanese regional banks, Japan Post Bank, 2 Resona group banks, and Shinhan Bank Japan

 The document has been translated in other languages

29 Aug 2019

Tokyo, August 29, 2019 -- Moody's Japan K.K. has today taken rating actions on 12 Japanese regional banks -- including Concordia Financial Group, Ltd. -- as well as on Japan Post Bank Co., Ltd., two banks under Resona Holdings, Inc., and Shinhan Bank Japan (SBJ).

The Baseline Credit Assessment (BCA) for all 16 banks, and the long-term deposit ratings of all banks except for Shizuoka Bank, Ltd. and SBJ, are placed on review for downgrade.

At the same time, Moody's has affirmed Shizuoka Bank's and SBJ's long-term deposit ratings, with the outlook at stable for both banks' ratings.

The 12 regional banks are:

77 Bank, Ltd. (The)

Bank of Fukuoka, Ltd. (The)

Chiba Bank, Ltd. (The)

Chugoku Bank, Limited (The)

Bank of Yokohama, Ltd. (The) [Concordia Financial Group, Ltd., the parent company of Bank of Yokohama, Ltd. (The)]

Daishi Bank, Ltd. (The)

Gunma Bank, Ltd. (The)

Hiroshima Bank, Ltd. (The)

Hyakujushi Bank, Ltd. (The)

Joyo Bank, Ltd. (The)

San-in Godo Bank, Ltd. (The)

Shizuoka Bank, Ltd. (The)

The two banks under Resona Holdings, Inc. are:

Resona Bank, Limited

Saitama Resona Bank, Limited

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_204222 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 review of the 16 banks' ratings is driven by the inability of Japanese banks to maintain profits without taking on more risk; a result of the increasingly challenging operating environment in the country. Domestic loan and investment yields continue to decline, because of ultralow domestic interest rates, while structural rigidities slow consolidation and systemwide cost rationalization.

Bank deposits continue to grow, driven by excess liquidity, which is caused in turn by extremely loose monetary policy.

Fierce competition to deploy increasing deposits leads to declining loan rates and hinders the banks from growing loans profitably and compressing the loan spreads required to absorb loan losses. At the same time, the banks are extending loans to marginally weaker borrowers to generate more loan volume, which will result in higher credit cost as the loans season.

Yields on yen-denominated bonds have declined to a record low. The banks are unable to generate income from excess deposits without taking on more investment risk, because interest rates across most of the yield curve have dropped and stayed near zero since 2016. Investment risks can come in many forms, including credit risk, interest rate risk, market risk, liquidity risk, structure risk, and foreign currency risk.

Banks that are taking on more investment risks will experience wider earnings volatility and incur additional risk-weight charges that will cause risk-weighted assets to increase and exert downward pressure on regulatory risk-adjusted capital ratios.

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.

The change in the Macro Profile for Japan does not affect Moody's assumption of a very high probability of government support for most rated banks.

FACTORS TO BE CONSIDERED IN THE RATING REVIEW

The rating reviews for downgrade will predominantly focus on the evolution of the banks' loan and investment portfolios in light of the prolonged period of ultralow interest rates. Moody's will assess the bank's strategy to halt the decline in their core pre-provision profitability, focusing on the incremental risk taken by the banks relative to their internal capital generation capabilities.

FACTORS THAT COULD LEAD TO AN UPGRADE

An upgrade of these banks' ratings is unlikely, given that their BCAs and/or ratings are on review for downgrade.

Nevertheless, Moody's could confirm the ratings of these banks if they demonstrate a clear path to improving their core profitability or capitalization.

FACTORS THAT COULD LEAD TO A DOWNGRADE

Moody's could downgrade the ratings of the banks if they are unable to demonstrate a clear path to improving their core profitability or capitalization.

PRINCIPAL METHODOLOGY

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.

BANK PROFILES

The 77 Bank, Ltd., headquartered in Sendai City, Miyagi Prefecture, is a regional bank in Japan. At the end of June 2019, the bank reported consolidated assets totaling JPY8.6 trillion.

The Bank of Fukuoka, Ltd., headquartered in Fukuoka City, Fukuoka Prefecture, is a regional bank in Japan and is a principal operating subsidiary of Fukuoka Financial Group, Inc. At the end of March 2019, the bank reported consolidated assets totaling JPY17.4 trillion.

The Chiba Bank, Ltd., headquartered in Chiba City, Chiba Prefecture, is a regional bank in Japan. At the end of June 2019, the bank reported consolidated assets totaling JPY15.3 trillion.

The Chugoku Bank, Limited, headquartered in Okayama City, Okayama Prefecture, is a regional bank in Japan. At the end of June 2019, the bank reported consolidated assets totaling JPY8.3 trillion.

The Bank of Yokohama, Ltd., headquartered in Yokohama City, Kanagawa Prefecture, is a regional bank in Japan and is a principal operating subsidiary of Concordia Financial Group, Ltd. At the end of March 2019, The Bank of Yokohama's reported unconsolidated assets totaling JPY16.9 trillion, while Concordia Financial Group reported consolidated assets totaling JPY18.9 trillion.

The Daishi Bank, Ltd., headquartered in Niigata City, Niigata Prefecture, is a regional bank in Japan. At the end of March 2019, the bank reported consolidated assets totaling JPY6.0 trillion.

The Gunma Bank, Ltd., headquartered in Maebashi City, Gunma Prefecture, is a regional bank in Japan. At the end of June 2019, the bank reported consolidated assets totaling JPY8.3 trillion.

The Hiroshima Bank, Ltd., headquartered in Hiroshima City, Hiroshima Prefecture, is a regional bank in Japan. At the end of June 2019, the bank reported consolidated assets totaling JPY9.4 trillion.

The Hyakujushi Bank, Ltd., headquartered in Takamatsu City, Kagawa Prefecture, is a regional bank in Japan. At the end of June 2019, the bank reported consolidated assets totaling JPY5.0 trillion.

The Joyo Bank, Ltd., headquartered in Mito City, Ibaraki Prefecture, is a regional bank in Japan. At the end of March 2019, the bank reported consolidated assets totaling JPY10.6 trillion.

The San-in Godo Bank, Ltd., headquartered in Matsue City, Shimane Prefecture, is a regional bank in Japan. At the end of June 2019, the bank reported consolidated assets totaling JPY5.6 trillion.

The Shizuoka Bank, Ltd., headquartered in Shizuoka City, Shizuoka Prefecture, is a regional bank in Japan. At the end of June 2019, the bank reported consolidated assets totaling JPY12.2 trillion.

Japan Post Bank Co., Ltd., headquartered in Tokyo, is one of the largest Japanese banks. At the end of June 2019, the bank reported consolidated assets totaling JPY212.5 trillion.

Resona Bank, Limited, headquartered in Osaka City, Osaka Prefecture, is one of Resona group banks. At the end of March 2019, the bank reported consolidated assets totaling JPY32.9 trillion.

Saitama Resona Bank, Limited, headquartered in Saitama City, Saitama Prefecture, is one of the Resona group banks. At the end of March 2019, the bank reported unconsolidated assets totaling JPY14.6 trillion.

Shinhan Bank Japan is the Japanese subsidiary of Korea-based, Shinhan Bank. At the end of March 2019, the bank reported unconsolidated assets totaling JPY0.8 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.

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

No Related Data.
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