DBRS Updates Credit Quality of Bank of Tokyo-Mitsubishi UFJ, Ltd.

DBRS has today updated the credit quality of the Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU), based on its solid franchise strength in its domestic market, strong liquidity and funding profile and reasonable asset quality. The intrinsic assessment for BTMU is A (low). The long-term rating of “A” incorporates the implied support of the Japanese government, adding one notch to the intrinsic assessment (based on the floor rating approach). The ratings of BTMU are based on DBRS’s assessment of Mitsubishi UFJ Financial Group, Inc. (MUFG or the Group).

For the fiscal year-ended March 31, 2012 (FY2011), operating profit before provisions for loan losses for MUFG fell by 5.3% from FY2010. This declining trend indicates that MUFG, like its Japanese peers, continues to face the following challenges, which have been reflected in the ratings for many years: (1) domestic loan demand is weak, as domestic loan portfolio growth has continued to remain relatively flat over the past two years, largely due to the still-weak domestic economy, competition, and the rising value of the yen, which reduces foreign assets translated into yen; (2) net interest margin remained low at 0.9% for the fiscal year ended March 31, 2012 (FY2011). Factors keeping net interest margins weak are competition among domestic banks for loans and Japan’s near-zero rate monetary policy.

Asset quality is not expected to emerge as a major issue for MUFG, based on the adequate position of non-performing loans and the emphasis on asset quality over the past decade. DBRS notes that the earthquake that struck Japan in 2011 has not resulted in material loan losses. MUFG’s lending exposure to the region most affected by the earthquake is relatively limited, and direct exposure to Tokyo Electric Power Company, Incorporated (TEPCO) should be manageable for MUFG.

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

DBRS ratings on the Bank of Tokyo-Mitsubishi UFJ (Canada) apply to debt that is guaranteed by The Bank of Tokyo-Mitsubishi UFJ, Ltd.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 29, 2012) and DBRS Criteria: Intrinsic and Support Assessments (February 11, 2009), which can be found on our website under Methodologies.