RAM Rating assigns AAA/P1 financial institution ratings to Japan’s Mizuho Bank
KUCHING: RAM Rating Services Bhd ( RAM Rating) assigned respective long- and short-term financial institution ratings of AAA and P1 to Mizuho Corporate Bank Ltd ( Mizuho).
According to RAM Rating Mizuho was one of the two core banking subsidiaries of Mizuho Financial Group ( MFG) Inc along with Mizuho Bank Ltd ( Mizuho Bank).
Mizuho’s credit strength is highly integral to the larger MFG, which is in the midst of a transformation that involves the mergerofMizuhoandMizuhoBank this coming July. The analytical viewpoints therefore primarily reflect the credit fundamentals of the larger MFG.
MFG is the second largest banking group in Japan by assets designated a global systemically important bank by the Financial Stability Board. As such, RAM Rating expected support from the Japanese government to be forthcoming in times of financial distress.
In addition, MFG had leading franchises in Japan’s corporate and retail banking segments, besides ranking among the nation’s top investment banks.
The group’s solid business positions gave rise to a vast and stable deposit base, which in turn underpinned its robust funding and liquidity profiles.
A substantial amount of its surplus funds had been invested in highly-liquid Japanese government bonds, leading to a loan-to- deposit ratio of 70 per cent, RAM Rating noted.
MFG’s liquidity position provided a strong buffer against the adversities of funding market dislocation and was a key strength that distinguished it from many of its global peers.
Despite the Great East Japan Earthquake in 2011 and the sluggish Japanese economy, MFG’s asset quality had stayed resilient, with a gross impairedloan ratio of 1.9 per cent as at end September 2012 and an annualised credit- cost ratio of 0.1 per cent for 9MFY March 2013, it said.
Moving forward, the economic performance of Japan and the credit fundamentals of the group’s major Japanese clients, particularly those from the export- oriented segment, would be crucial to its asset quality.
Meanwhile, MFG’s profitability had been slowly improving since the global financial crisis, albeit still subdued by the near- zero interest rates in Japan.
Similar to other Japanese banks, MFG had historically held shares in its major corporate clients for relationship-building purposes; this heightened the volatility of its profit performance and capitalisation, RAM Rating added.
Despite having been gradually reduced over the years, MFG’s exposure to equities remained sizeable at 33 per cent of its tier-1 capital as at end December 2012.
In view of this, the group’s capitalisation was considered weaker than its global peers’. The management estimated that its common- equity tier-1 ratio would come up to around seven per cent (without the transitional arrangements under Basel III) by March 2013, and targeted to lift this to eight per cent by March 2016 through earnings retention.
On balance, MFG aimed to further reduce its equity holdings to 25 per cent of its tier-1 capital within the next three years. The group had also been expanding its overseas lending portfolio in recent years given the subdued credit demand in Japan.
Nonetheless, MFG had been cautious with its foreign expansion and mainly targeted top-tier corporates.
RAM Rating opined that sustained expansion abroad, which yielded better margins, and the reduction of equity holdings should progressively improve MFG’s profitability and capitalisation.