Following yesterday’s sovereign downgrade of Japan, Moody’s Investors Service has now downgraded its ratings on five of the country’s big banks.
The rating agency downgraded the long-term deposit and debt ratings of the Bank of Tokyo-Mitsubishi UFJ, Ltd., Mitsubishi UFJ Trust and Banking Corp, Sumitomo Mitsui Banking Corp., the Shizuoka Bank, Ltd., and the Chugoku Bank, Ltd. by one notch to A1 from Aa3.
It says that the downgrade actions are in response to its downgrade of the government of Japan’s rating, amid concerns about the viability of its fiscal strategy. “The rating actions reflect Moody’s view that in Japan the capacity of the government to support banks is best measured by its own debt rating,” it says. As a result, the banks’ ratings have been lowered to the same level as the sovereign rating.
Moody’s says that, despite these rating actions, it believes that the willingness of the Japanese government to support major banks continues to be very high. “The explicit policy objective of the Japanese bank resolution framework is to avoid any disruption in the banks’ fundamental functions through early intervention, via injections of government capital and temporary nationalization,” it says; noting that the country’s resolution framework aims to maintain financial stability and to prevent disorderly failure by preemptively providing liquidity and capital support to banks.
None of the banks’ ratings, which are driven by Moody’s opinion of their intrinsic or standalone financial strength were changed by the rating action. The ratings outlook is stable. Given that these ratings are geared to the sovereign rating, upgrades are unlikely, Moody’s says. Downgrades could be driven by a further downgrade of the sovereign rating, bottom-line losses at the banks, or a significant deterioration in their capital positions.