DBRS Updates Its Report on Mizuho Corporate Bank and Related Entities

DBRS has today updated its report on Mizuho Corporate Bank, Ltd. (MCB, rated “A” and R-1 (middle)). MCB’s credit quality is based on its strong domestic franchise, strong liquidity and funding profiles, and reasonable asset quality. The intrinsic assessment for MCB is BBB (high); the long-term rating of “A” 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 fiscal year ended March 31, 2012 (FY2011), operating profit before provisions for loan losses for Mizuho fell by 28% from FY2010. This recent result indicates that Mizuho, like its Japanese banking peers, continues to face the following challenges, which have been reflected in the ratings for many years: (1) Domestic loan demand is weak, largely as a result of the still-weak domestic economy, competition, and the rising value of the yen, which reduces foreign assets translated into yen. (2) Net interest margins remained low, at around 0.71% in 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 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 should be manageable); and (3) the emphasis on asset quality over the past decade.

Notes:
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.