Actions follow conclusion of methodology-related review
Tokyo, June 16, 2015 -- Moody's Japan K.K. has concluded its rating reviews
on San-in Godo Bank, Ltd. and Daishi Bank, Ltd.
These reviews were initiated on 18 March 2015 (see press release at http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320727),
following the publication of Moody's new bank rating methodology.
Among the actions Moody's has taken are the following:
San-in Godo Bank, Ltd.
- Long-term bank deposit rating (foreign and domestic currency):
upgraded to A2 from A3
- Short-term deposit rating (foreign and domestic currency):
upgraded to P-1 from P-2
- Baseline credit assessment (BCA) and Adjusted BCA: raised
to baa1 from baa2
Daishi Bank Ltd.
- Long-term bank deposit rating (foreign and domestic currency):
upgraded to A2 from A3
- Short-term deposit rating (foreign and domestic currency):
upgraded to P-1 from P-2
- BCA and Adjusted BCA: raised to baa1 from baa2
The rating outlooks for both banks are stable.
Moody's has also assigned A1(cr)/Prime-1(cr) Counterparty Risk
(CR) assessments to both banks, in line with its new bank rating
methodology.
RATINGS RATIONALE
The new bank rating methodology includes a number of elements that Moody's
has developed to help accurately predict bank failures and determine how
each creditor class is likely to be treated when a bank fails and enters
resolution. These new elements capture insights gained from the
crisis and the fundamental shift in the banking industry and its regulation.
In light of the new banking methodology, Moody's rating actions
generally reflect the following considerations:
1) The Strong+ macro profile of Japan
Japanese banks benefit from operating in an economy with substantial economic
and institutional strengths.
Japan's Strong+ Macro Profile reflects the country's very large,
diverse, and wealthy economy, tempered by weak credit conditions
due to high private debt levels relative to GDP.
Lackluster economic growth since the 1990s and an exceptionally long period
of mild deflation have contributed to a deterioration in the country's
public finances. On December 1, 2014, the rating of
the Government of Japan was downgraded to A1 with a stable outlook from
Aa3.
An extremely accommodative monetary policy, which is intended to
help reflate the country's economy, has driven down credit spreads
and investment returns, while loan demand remains weak, resulting
in a challenging operating environment for banks to generate profits.
2) Good capitalization and liquidity profile while tempered by moderate
asset risk and low profitability
Capitalization and liquidity profile of rated Japanese regional banks,
including San-in Godo and Daishi, are solid. However,
persistently low interest rates, severe competition, and limited
growth opportunities within their home markets pressure their profitability.
3) Very high likelihood of government support
Moody's view that the probability of government support in the event
of stress is judged to be very high based on the bank's sizeable market
share in deposits and loans in its home market is unchanged.
RATIONALE FOR ASSIGNMENT CR ASSESSMENTS
Moody's has also assigned CR assessments to San-in Godo and
Daishi. CR assessments are opinions of how counterparty obligations
are likely to be treated if a bank fails, and are distinct from
debt and deposit ratings in that they (1) consider only the risk of default
rather than expected loss and (2) apply to counterparty obligations and
contractual commitments rather than debt or deposit instruments.
The CR Assessments are an opinion of the counterparty risk related to
a bank's covered bonds, contractual performance obligations (servicing),
derivatives (e.g., swaps), letters of credit,
guarantees and liquidity facilities.
The CR Assessment takes into account the issuer's standalone strength
as well as the likelihood of affiliate and government support in the event
of need, reflecting the anticipated seniority of these obligations
in the liabilities hierarchy. The CR Assessment also incorporates
other steps authorities can take to preserve the key operations of a bank
should it enter a resolution.
For Japanese banks, the CR Assessment is positioned, prior
to government support, one notch above the Adjusted BCA and therefore
above senior unsecured and deposit ratings, reflecting Moody's
view that its probability of default is lower than that of senior unsecured
debt and deposits. Moody's believe that senior obligations
represented by the CR Assessment will be more likely preserved in order
to limit contagion, minimize losses and avoid disruption of critical
functions.
For Japanese banks, the CR Assessments also benefit from government
support in line with Moody's support assumptions on deposits and
senior unsecured debt. This reflects Moody's view that any
support provided by governmental authorities to a bank which benefits
senior unsecured debt or deposits is very likely to benefit operating
activities and obligations reflected by the CR Assessment as well,
consistent with Moody's belief that governments are likely to maintain
such operations as a going-concern in order to reduce contagion
and preserve a bank's critical functions.
SPECIFIC ANALYTICAL FACTORS FOR THE BANKS
SAN-IN GODO'S DEPOSIT RATINGS UPGRADED; COUNTERPARTY
RISK ASSESSMENTS ASSIGNED
Moody's upgraded San-in Godo's long- and short-term
deposit ratings to A2 stable/Prime-1 and raised its BCA to baa1
from baa2. Moody's also assigned long- and short-term
CR Assessments of A1(cr)/Prime-1(cr) to San-in Godo.
The upgrade reflects an increased emphasis placed on capitalization and
liquidity under Moody's new methodology. San-in Godo's
BCA of baa1 reflects our assessment of the bank's very strong Tangible
Common Equity/risk-weighted assets ratio(TCE ratio), its
Funding Structure, and Liquidity Resources.
However, these strengths are tempered by several credit challenges
that arise out of structural problems, such as a decreasing population
in the bank's home economy and persistently low market interest rates.
For example, the bank's profitability faces downward pressure,
due to its low loan-to-deposit ratio and declining investment
yields, as its fixed income securities portfolio re-prices
to prevailing market rates. Furthermore, additional cost
cutting opportunities may be limited because of the lower population density
in the bank's home market.
San-in Godo Bank, Ltd's A2 long-term rating incorporates
a two-notch uplift from its Adjusted BCA of baa1. The uplift
reflects our assessment of a very high likelihood of government support
for the bank in a situation of stress, given its importance to its
local market.
The stable outlook reflects Moody's expectation that the bank's capitalization,
funding structure and liquidity resources will remain stable.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Further upgrades in the near term is unlikely, given the upgrades
announced today. However, a demonstrated ability to expand
its business outside of the bank's home market while maintaining
its strong capitalization and good asset quality, would lead us
to consider a ratings upgrade.
On the other hand, downward rating pressure could arise from,
but is not limited to:
- The TCE ratio falls below 13%
- The bank's risk appetite increases materially to sustain profitability
- Japan's sovereign rating is downgraded
DAISHI'S DEPOSIT RATINGS UPGRADED; COUNTERPARTY RISK ASSESSMENTS
ASSIGNED
Moody's upgraded Daishi's long- and short-term deposit
ratings to A2 stable/Prime-1 and raised its BCA to baa1 from baa2.
Moody's also assigned long- and short-term CR Assessments
of A1(cr)/Prime-1(cr) to Daishi.
The upgrade reflects an increased greater importance on funding structure
and liquidity under Moody's new methodology. Daishi's BCA
of baa1 reflects (1) very strong liquidity profile, firmly backed
by solid deposits and highly liquid securities, such as JGB holdings;
(2) moderate capital profile; (3) moderate asset risk supported by
strong loan quality, but tempered by geographic concentration,
loan concentration in the real estate sector, and exposure to market
risk; and (4) weak profitability profile.
Daishi's A2 long-term rating incorporates a two-notch uplift
from its Adjusted BCA of baa1. The uplift reflects our assessment
of a very high likelihood of government support for the bank in a situation
of stress, given its importance to the local economy.
The stable outlook reflects Moody's expectation that funding structure
and liquidity resources will remain stable.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Further upgrades in the near term is unlikely, given the upgrades
announced today. However, we would consider upgrading the
bank's ratings if it improves its tangible common equity to risk-weighted
assets ratio to around 12% through an ongoing accumulation in retained
earnings and if it maintains stability in asset quality.
On the other hand, downward rating pressure could arise from,
but is not limited to:
- The TCE ratio falls below 9%
- Liquidity profile weakens though increased reliance on market
funds or investments in less liquid assets
- The bank's risk appetite increases materially to sustain profitability
- A downgrade of Japan's sovereign rating
The principal methodology used in these ratings was Banks (Japanese) published
in March 2015. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
San-in Godo Bank, Limited, headquartered in Matsue
City, Shimane Prefecture, is a regional bank in Japan with
total consolidated assets of JPY4.8 trillion at end-March
2015.
Daishi Bank, Limited, headquartered in Niigata City,
Niigata Prefecture, is a regional bank in Japan with total consolidated
assets of JPY5.2 trillion at end-March 2015.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Moody's Japan K.K. is a credit rating agency registered
with the Japan Financial Services Agency and its registration number is
FSA Commissioner (Ratings) No. 2. The Financial Services
Agency has not imposed any supervisory measures on Moody's Japan K.K.
in the past year.
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: 813-5408-4110
SUBSCRIBERS: 813-5408-4100
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
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Tokyo 105-6220
Japan
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100
Moody's upgrades San-in Godo and Daishi's ratings
