DBRS Confirms Ratings and Trends of Mizuho Corporate Bank, Ltd. and Related Entities

DBRS has today confirmed the long- and short-term ratings of Mizuho Corporate Bank, Ltd. (MCB) at “A” and R-1 (middle), respectively. All trends remain Stable. The intrinsic assessment for MCB is BBB (high). The long-term rating incorporates the implied support of the Japanese government, adding two notches to the intrinsic assessment (based on the floor rating approach; see rating report for further details). The ratings of MCB are based on the assessment of Mizuho Financial Group, Inc. (Mizuho or the Group).

For the nine-month period ended December 31, 2010, net interest income for Mizuho fell by 4.8% from the comparable prior-year period. This recent result indicates that Mizuho, like its Japanese peers, continues to face the following challenges which have been reflected in the ratings for many years: (1) Loan demand is weak – the loan portfolio has continued to shrink over the past two years, largely due to the still-weak domestic economy and the rising value of the yen, which reduces foreign assets translated into yen; (2) Interest margins remain low, at around 1%, because the Group invests excess loan capacity in low-yield government securities. Also keeping interest margins weak is competition among the banks for loans and Japan’s near-zero rate monetary policy. Thus, the main reasons that adjusted earnings (before securities gains) increased by 90% for the nine-month period are zero loan loss provisions recorded in the period and Mizuho’s good control over operating costs.

Asset quality is not expected to emerge as a major issue for the Group based on the position of non-performing loans and the emphasis on asset quality over the past decade. DBRS notes that the earthquake that recently struck Japan is not expected to have material rating implications at this point. In the longer term, the event will likely have some impact on loan losses, although this impact should be absorbed. Mizuho’s lending exposure to the region most affected by the earthquake appears to be relatively limited, and direct exposure to Tokyo Electric Power Company, Incorporated seems manageable for the Group.

Note:
All figures are in Japanese Yen unless otherwise noted.
This rating is based on public information.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (January 14, 2010) and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments (February 11, 2009), which can be found on our website under Methodologies.