DBRS Confirms Mizuho Corporate Bank, Ltd. at “A” and R-1 (middle), Stable Trends

DBRS has today confirmed the Issuer Rating of Mizuho Corporate Bank, Ltd. (MCB) at “A” and its long and short-term ratings at “A” and R-1 (middle), respectively. All trends remain Stable. 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).

The intrinsic assessment for MCB of BBB (high) reflects weaker capital ratios relative to its domestic peers. Should MCB successfully improve its capital ratio and execute the integration process with Mizuho’s retail banking unit, Mizuho Bank, Ltd., resulting in further meaningful synergetic benefits, positive rating action could be warranted.

For the six-month period ended September 30, 2012 (H1 2012), operating profit before provisions for loan losses for Mizuho rose by 34% from the six-month period ended September 30, 2011 (H1 2011). Despite this result, 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 staggering domestic economy; and (2) net interest margins remain low, at approximately 0.69% in H1 2012. 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 and (2) the emphasis on asset quality over the past decade.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations and DBRS Criteria: Intrinsic and Support Assessments, which can be found on our website under Methodologies.