Fitch Ratings has affirmed
The Outlook on the IDRs is Stable.
Key Rating Drivers
VR-Driven IDR:
The VR, which reflects the group's intrinsic credit profile, is the same as the implied rating, which is underpinned by its adequate loss absorption buffers and funding and liquidity balanced against the limited headroom in profitability for the rating level. The Short-Term IDR of 'F1' is at the higher of the two options mapped to the Long-Term IDR of 'A-', supported by the funding and liquidity score of 'a'.
Stable Operating Environment Outlook: Fitch expects
Leading Franchise: The VR considers the bank's strong market position in the Shizuoka prefecture, with the largest market share in loans at over 35%. This underpins our business profile score of 'a-', which is above the implied 'bbb' category score. The bank has a longstanding leading franchise in the prefecture and strong client relationships in the region. However,
Sound Risk Management: We believe
Asset Quality Remains Sound: We expect
Profitability Challenges Continue: We expect
Strong Capitalisation: We expect the common equity Tier 1 (CET1) ratio of the group to remain sound and higher than that of most major Japanese banks. Before the restructuring,
Sound Funding Position: We expect
High Probability of Support:
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IDRS AND VR
The VR could come under pressure from a combination of a sustained deterioration in the consolidated operating profit/risk-weighted asset ratio to below 0.75% (three months ending
Involvement in industry consolidation, leading to potentially higher volatility in earnings or capital, or deterioration of asset quality, could also lead to negative rating action.
In addition,
GSR
Fitch may take negative action on the bank's GSR if we believe the government's propensity to support the bank is lowered or the ability to support the bank has deteriorated significantly.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IDRS AND VR
Potential upside for the ratings is limited. Substantial improvement in the operating environment and positive rating action on
GSR
Shizuoka's GSR could be upgraded if Fitch believes there is a higher propensity for the sovereign to provide support to the bank. This may result from an increase in the bank's systemic importance, reflected in a meaningful national market share. However, we think the likelihood is low over the medium term due to the bank's regional focus.
VR ADJUSTMENTS
The business profile score of 'a-' has been assigned above the 'bbb' category implied score due to the following adjustment reason: market position (positive).
The category implied operating environment score is at the cusp of 'aa' and 'a' and we have applied economic performance (negative) as an adjustment to arrive at the assigned score of 'a-'.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Summary of Financial Adjustments
Total assets and total liabilities exclude acceptances and guarantees from
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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