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). 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, 2011, operating profit for Mizuho fell 35% from the comparable prior-year period. The loss was a result of decreased net interest income, a large drop in trading profit and a slight edge up in operating expenses. Mizuho continues to face the following challenges, which have been reflected in the ratings for many years: (1) Loan demand is weak – despite the recent increase in the consolidated loan balance in Q3 2011, the loan portfolio has remained stagnant over the medium term, largely as a result of 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 0.7%, given that the Group invests excess loan capacity in low-yield government securities. Competition among domestic banks for loans and Japan’s near-zero rate monetary policy have additionally contributed to weak interest margins. Adjusted pre-tax earnings (before securities gains) also experienced a modest decline for the nine-month period ended December 2011, driven by decreases in both net interest income and non-interest income, offset by a comparable decline in operating expenses.

Asset quality is not expected to emerge as a major issue for the Group, based on (1) its relatively limited exposure to European peripheral countries; (2) no material credit risk associated with the earthquake that struck Japan in 2011 (Mizuho’s lending exposure to the region most affected by the earthquake and direct exposure to Tokyo Electric Power Company, Incorporated (TEPCO) should be manageable); and (3) the emphasis on asset quality over the past decade.

Note:
All figures are in Japanese Yen unless otherwise noted.

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.